3) Positive Alpha Investments obtains telephone distribution plants with a 16-year lease with maintenance. The lease meets the guidelines to expense the payments. Lease payments would be $X,000,000 per year. Equipment cost is 12 times the lease payment. Loan rate is 8% and Marginal Tax Rate is 20%. The equipment falls into the 15 -year MACRS schedule. If the company borrows and buys the equipment the maintenance contract costs 3% of the lease payment per year. The residual value of the equipment is 8% of the purchase price after 16 years. 15 yr Depreciation Schedule Year Rate 1 5% 2 9.5% 3 8.55% 4 7.7% 5 6.93% 6 6.23% 7 5.9% 8 5.9% 9 5.91% 10 5.9% 11 5.91% 12 5.9% 13 5.91% 14 5.9% 15 5.91% 16 2.95%

What would the lease payments need to be to be indifferent between leasing and buying (based purely on financial payments)?