Calculate the net advantage to leasing for the Consumer Products Division. (8 marks)

If the Consumer Products Division buys the equipment, it will borrow $8,000,000 at 10% interest. Annual maintenance costs associated with ownership are estimated to be $600,000 and the equipment will be depreciated on a straight-line basis on cost over 4 years. After 4 years use, the equipment will be sold. The best estimate of its residual value at that time is $800,000. Because the technology is changing rapidly, however, the residual value is uncertain. The lease payment of $2,500,000 per year is paid at the end of the year for 4 years. The lessor will provide the maintenance. The company's tax rate is 20%