Lease versus purchase JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 27% 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 $31,000 are required over the three-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $3,000 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 3 under the lease option. Purchase The equipment costs $75,000 and can be financed with a 13% loan requiring annual end-of-year payments of $31,764 for three years. JLB will depreciate the equipment under MACRS using a three-year recovery period. (See Es for the applicable depreciation percentages.) JLB will pay $2,400 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 three-year recovery period. a. Calculate the after-tax cash outflows associated with each alternative. (Hint: Because insurance and other costs are borne by the firm under both alternatives, those costs can be ignored here.) b. Calculate the present value of each stream, using the after-tax cost of debt. c. Which alternative lease or purchasewould you recommend? Why? Data Table a. The after-tax cash outflow associated with the lease in year 1 is $. (Round to the nearest dollar.) x Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year Recovery 3 years 5 years 7 years 10 years year 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% Enter your answer in the answer box and then click Check Answer. 8 parts remaining Check