Morris-Meyer Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the required amount. Alternatively, A Nevada investment banking firm that represents a group of investors believe that it can arrange for a lease financing plan.

Assume the following facts apply: 1. The equipment falls in the MACRS 3-year class. 2. If it borrows to purchase, then the estimated maintenance expenses are $75,000 per year payable at the end of each year. 3. Morris-Meyers Federal-plus-state tax rate is 40%. 4. If the money is borrowed, the bank loan will be at a rate of 15%, amortized in 4 equal installments to be paid at the end of each year. 5. The tentative lease terms call for end-of-year payments of $400,000 per year for 4 years. 6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance. 7. Morris Meyer will use the equipment for 4 years at the end of which it will be sold. The best estimate of this market value is $250,000. Note: The applicable MACRS rates are 33%, 45%, 15%, and 7%.

a. Calculate the net advantage to leasing?