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 $400,000 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	600,000	600,000
Cost of goods sold	300,000	300,000
Gross income	300,000	300,000
Operating expenses:
Business	55,000	55,000
Real Estate	35,000	35,000
Lease payments	0	65,000
Interest	50,000	0
Depreciation	30,000	0
Taxable income	130,000	145,000
Tax	39,000	43,500
Income after tax	91,000	101,500
Plus: Depreciation	30,000	0
After-tax cash flow	121,000	101,500