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5. Amy, CFO of your company, asks your advice on whether the company should purchase or lease office space. The analysis should be based on

5. Amy, CFO of your company, asks your advice on whether the company should purchase or lease office space. The analysis should be based on a 10-year timeframe according to the company's business plan. Here are the assumptions for each option. Alt. 1 Purchase: Marginal tax rate: 31% Discount rate (cost of capital): 10.5% per year Capital gain tax rate: 28% Purchase price: $1million Closing costs: $50,000 Loan-to-value ratio: 80% Interest rate for loan: 9.7% per year Amortization period: 25 years Land value: $350,000 Depreciation rate: 2.5% per year Operating expense: $55,000, 3% annual growth Value appreciation rate: 3% per year After-tax cash flow from resale: $433,602 Alt. 2 Lease: Marginal tax rate: 31% Discount rate (cost of capital): 10.5% per year Annual lease payment: $120,000, 3.3% annual growth Tenant pays operating expenses: $55,000, 3% annual growth 5.1. Compare net costs for each option (purchase vs. lease). Show your analysis/calculation. 5.2. Besides the financial analysis above (6.1), what would you recommend the CFO and your FM department to consider

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