Case B: Walton Nursing Home (WHN) is evaluating a guideline lease agreement on laundry equipment that costs $250,000 and falls into the MACRS three-year class. The home can borrow at an 8% rate on a four-year loan if WHN decided to borrow and buy rather than lease. The laundry equipment has a four-year economic life, and its estimated residual value is $50,000 at the end of year 4. If WHN buys the equipment, it would purchase a maintenance contract which costs $5,000 per year, payable at the beginning of each year. The lease terms, which include maintenance, call for a $71,000 lease payment at the beginning of each year. WHN's tax rate is 40%.

Modified Accelerated Cost Recovery System (MARCS) for year 1 = 33%; Year 2 = 45%; Year 3 = 15%; Year = 7%

a. Calculate the after tax cost of debt.

b. Calculate the net cash flows associated with owning the laundry equipment for year 0; year 1; , year 2, year 3, and year 4.

c. Calculate the net cash flows associated with leasing the laundry equipment for year 0; year 1; year 2, and