A company is planning to move to a larger office and is trying to decide if the new office should be owned or leased. Annual cash flows for owning versus leasing are estimated as follows. Assume that the cash flows from operations will remain constant over a 10-year holding period. If purchased, the company will invest $300,000 in equity and finance the remainder with an interest-only loan that has a balloon payment due in year 10. The companys marginal income tax rate is 30%. What would the equity after-tax cash flow from the sale of the property at the end of 10 years have to be to produce a 10% incremental rate of return on equity with owning instead of leasing?

	Own	Lease
Sales	500,000	500,000
Costs of Goods Sold	250,000	250,000
Gross income	250,000	250,000
Operating expenses:
Business	65,000	65,000
Real Estate	30,000	30,000
Lease payments	0	60,000
Interest	45,000	0
Depreciation	20,000	0
Taxable income	90,000	95,000
Tax	27,000	28,500
Income after tax	63,000	66,500
Plus: Depreciation	20,000	0
After-tax cash flow	83,000	66,500