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DEF Corporation is considering leasing a new office space. The lease terms are $120,000 per year for 5 years. Alternatively, the company can purchase the

DEF Corporation is considering leasing a new office space. The lease terms are $120,000 per year for 5 years. Alternatively, the company can purchase the office space for $500,000, which has a useful life of 20 years and a salvage value of $50,000. The company's cost of capital is 7%.

  • Requirements:
    • Calculate the total cost of leasing over 5 years.
    • Calculate the annual depreciation expense if the office space is purchased.
    • Determine the present value of the lease payments.
    • Compare the financial implications of leasing vs. buying and provide a recommendation.

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