Green Grass and High Tides Landscaping (GGHT) is planning on purchasing $3 million in new equipment. GGHT can either lease the equipment or get a $3 million bank loan to purchase it. The new landscaping equipment falls into the MACRS 3-year class (with depreciation rates of 33%, 44.45%, 14.81%, and 7.41%). Maintenance for the equipment will be $125,000 (payable at the beginning of the year), the firm has a 40% tax rate and can borrow the funds for the equipment at 14%. If GGHT leases the equipment it will cost $800,000 per year for 4 years (payable at the end of each year). Regardless of whether or not GGHT purchases or leases the equipment it will be responsible for paying for the equipment maintenance. Finally, assume GGHT will use the equipment beyond the expiration of the lease and will purchase it at its residual value of $500,000 at the end of the 4th year. After this purchase, the equipment will be depreciated using the 3 year MACRs schedule starting in year 4. What is the NAL of the lease, should GGHT purchase or lease this equipment?

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