Lease versus purchase Le Corporation in attempting to determine whether to lease or purchase research equipment. The firm is in the 22% tax bracket, and its after-tax cost of is currenty 9%. The terms of the lease and of the purchase are as follows: Lease Annual end-of-year lease payments of $23,000 are required over the three-year life of the lense. Alt maintenance costs will be paid by the lessorinuranice and other costs will be bome by the lossee. The sense will exercise its option to purchase the set for $5,500 at termination of the lease. Ignore any future tax benefit sociated with the purchase of the equipment at the end of year 3 under the lease option Purchase the equipment costs $65.000 and can be financed with a 13% loan requiring annual end-of-year payments of $23,204 for three years. J.B will depreciate the equipment under MACRS using a three-year recovery period. (See for the applicable depreciation percentages.) JLB will pay $2,000 per year for a service contract that covers all maintenance costs; insuranon and other costs will be bome by the firm. The firm plans to keep the equipment and use it beyond its three-year recovery period .. Calculate the afferfax cash outflows associated with each alternative. (Hint: Because insurance and other costs are bome by the firm under both alternatives, those covery period .. Calculate the after tax cash outflows associated with each alternative. (Hint Because insurance and other costs are bome by the firm under om alteratives, thoon cost can be ignored here.) b. Calculate the present value of each stream, using the after-tax cost of debt c. Which tematiese or purchase-would you recommend? Why? - Data table 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% These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance depreciation using the half-year convention Print Done