asset for $$3,500$ 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.

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

b$.$ Calculate the present value of each stream, using the after$-$tax cost of debt.

c$.$ Which alternative$-$lease or purchase$-$would you recommend? Why?

a$.$ The after$-$tax cash outflow associated with the lease in year $1$ is $$18250.($Round to the nearest dollar.$)$

The after$-$tax cash outflow associated with the lease in year $2$ is $$18250.($Round to the nearest dollar.$)$

The after$-$tax cash outflow associated with the lease in year $3$ is $$21750.($Round to the nearest dollar.$)$

The after$-$tax cash outflow associated with the purchase in year $1$ is $$.($Round to the nearest dollar.$)$

Data table

${?}^a$ These percentages have been rounded to the nearest whole percent to simplify

calculations while retaining realism. To calculate the actual depreciation for

tax purposes, be sure to apply the actual unrounded percentages or

directly apply double$-$declining balance depreciation using the half$-$year

convention.