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years. Deten te interest and the amount of principal paid for each year. (1) presented in Chapter 5 to find the loan payment.) P17-4 Lease versus purchase JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 21% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Lease Annual end-of-year lease payments of $25,200 are required over the 3-year life of the lease. All maintenance costs will be paid by the lessor; in- surance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $5,000 at termination of the lease. Purchase The research equipment, costing $60,000, can be financed entirely with a 14% loan requiring annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The firm plans to keep the equipment and use it beyond its 3-year re- covery period. a. Calculate the after-tax cash outflows associated with each alternative. b. Calculate the present value of each cash outflow stream, using the after-tax cost of debt. c. Which alternative-lease or purchase-would you recommend? Why? 17.5 Lease versus purchase Northwest Lumber Company needs to exnandite faili