Answer for

Lease versus purchaseJLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 23% tax bracket, and its after-tax cost of debt is currently 9%. The terms of the lease and of the purchase are as follows:

LeaseAnnual end-of-year lease payments of $30,000 are required over the three-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $6,500 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 3 under the lease option.

PurchaseThe equipment costs $70,000 and can be financed with a 15% loan requiring annual end-of-year payments of $30,658 for three years. JLB will depreciate the equipment under MACRS using a three-year recovery period.

Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes
	Percentage by recovery year Superscript a
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45%	32%	25%	18%
3	15%	19%	18%	14%
4	7%	12%	12%	12%
5		12%	9%	9%
6		5%	9%	8%
7			9%	7%
8			4%	6%
9				6%
10				6%
11				4%
Totals	100%	100%	100%	100%

for the applicable depreciation percentages.) JLB will pay $2,600 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The firm plans to keep the equipment and use it beyond its three-year recovery period.

a. Calculate the after-tax cash outflows associated with buying. (Hint: Because insurance and other costs are borne by the firm under both alternatives, those costs can be ignored here.)

a. The after-tax cash outflow associated with the purchase in year 1 is

$24,932. (Round to the nearest dollar.)

The after-tax cash outflow associated with the purchase in year 2 is

$enter your response here. (Round to the nearest dollar.)

The after-tax cash outflow associated with the purchase in year 3 is

$enter your response here. (Round to the nearest dollar.)

(These are the answers that I got but how do I find the calcuations for after-tax outflow associated with the purchase in year 2?)

b. Calculate the present value of buying using the after-tax cost of debt.