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Hittel, Inc. is considering leasing or purchasing a small aircraft to transport executives between manufacturing facilities and the main administrative headquarters. The firm is in

Hittel, Inc. is considering leasing or purchasing a small aircraft to transport executives between manufacturing facilities and the main administrative headquarters. The firm is in the 40 percent tax bracket and its aftertax cost of debt is seven percent. The estimated aftertax cash flows for the lease and purchase alternatives are given below:

End of Cash Flows (aftertax)

Year Lease Purchase

1 64,329 68,454

2 64,329 59,110

3 64,329 63,596

4 64,329 66,633

5 -64,329 - 30,056

Given the above cash outflows for each alternative, calculate the present value of

the aftertax cash flows using the aftertax cost of debt for each alternative.

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