Butchers Block is a local butcher shop that is looking to lease a walk-in freezer. The cost of the freezer is $350,000 and the annual lease payments made at the end of each year are $100,000. The lease will last for 4 years, but the asset will be depreciated using a 5-year MACRS schedule. Butchers Block has to pay $8,000 at the end of each year in maintenance cost (which represent additional operating costs) if it owns the freezer. The estimated salvage value of the freezer at the end of the fourth year is $60,000. Butchers tax rate is 40%. If Butchers Block were to purchase the freezer, their pre-tax cost of borrowing would be 10%. Further, Butchers Block has an after-tax WACC of 15%. Should Butchers Block lease the freezer?

* the 5-year MACRS schedule for 4 years is the following: 20% for year 1, 32% for year 2, 19.2% for year 3, and 11.52% for year 4.

Determine the present value of depreciation tax shield.

94,489

101,631

121,378

157,781