Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office.

The system receives current market prices and other information from several online data services and then either

displays the information on a screen or stores it for later retrieval by the firm's brokers. The system also permits

customers to call up current quotes on terminals in the lobby.

The equipment costs $$1,000,000$ and, if it were purchased, Lewis could obtain a term loan for the full purchase price

at a $10\%$ interest rate. Although the equipment has a $6-$year useful life, it is classified as a special$-$purpose computer

and therefore falls into the MACRS $3-$year class. If the system were purchased, a $4-$year maintenance contract could

be obtained at a cost of $$20,000$ per year, payable at the beginning of each year. The equipment would be sold after

$4$ years, and the best estimate of its residual value is $$200,000.$ However, because real$-$time display system

technology is changing rapidly, the actual residual value is uncertain.

As an alternative to the borrow$-$and$-$buy plan, the equipment manufacturer informed Lewis that Consolidated

Leasing would be willing to write a $4-$year guideline lease on the equipment, including maintenance, for payments

of $$260,000$ at the beginning of each year. Lewis's marginal federal$-$plus$-$state tax rate is $25\%.$ You have been asked

to analyze the lease$-$versus$-$purchase decision and, in the process, to answer the following questions.

e$.$ Now assume that the equipment's residual value could be as low as $$0$ or as high as $$400,000,$ but $$200,000$ is the

expected value. Because the residual value is riskier than the other relevant cash flows, this differential risk should

be incorporated into the analysis. Describe how this could be accomplished. $($No calculations are necessary, but

explain how you would modify the analysis if calculations were required.$)$ What effect would the residual value's

increased uncertainty have on Lewis' lease$-$versus$-$purchase decision?