Jack Ltd is considering leasing a new machine. The lease term includes five annual payments of $210,000 with the first payment occurring when the lease is signed. The machine would cost $1 million to buy and would be depreciated to zero over five years on a straight-line basis. If Jack Ltd buys the machine, it would borrow $1 million from ABC Bank. The loan repayment schedule is five annual principal repayment of $200,000 and an interest rate of 10 percent charged on the outstanding loan balance at the beginning of each year. Both principal repayments and interest are due at the end of each year. Jack Ltd has a tax rate of 30 percent. What is the cash flow from leasing relative to buying in year two?

a.

$49,000

b.

$109,000

c.

$73,000

d.

$249,000