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Assume you have determined that the annual cost of operations (maintenance, etc.) under a capital lease are $75,192 per year for the next 5 years.

Assume you have determined that the annual cost of operations (maintenance, etc.) under a capital lease are $75,192 per year for the next 5 years. The firms after-tax cost of debt is 10% and the tax rate is 35%. Rather than occurring only at the end of the year, you have realized that operating expenses tend to occur evenly throughout the year. Using the mid-year approximation, by how much (in present value terms) are you underestimating these costs by assuming end-of-year rather than evenly-throughout-the-year payments?

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