NB Power plans to acquire a large water turbine for one of its dams by entering into a long$-$termlease

agreement with the Atlantic Steel Ltd $($ASL$).$ ASL will provide the turbine under either of the

following lease arrangements:

NB Power is to pay $$2,500,000$ at the beginning of the lease $($delivery date$)$ and $$1,000,000$ at

the end of each of the next five years. At the end of the fifth year, NB Power may take title to the

turbine for an additional payment of $$3,000,000$

NB Power is to pay $$2,000,000$ at the beginning of the lease and $$900,000$ at the end of each of

the next ten years. At the end of the tenth year, NB Power may take title for an additional

payment of $$1,300,000.$

Under either proposal, NB Power will buy the turbine at the end of the lease. NB power is a

government monopoly that does not stress the earning of profit and is not evaluating alternative

investments. However, NB Power attempts to minimize its costs as it realizes that the cost of

capital to it is about $8\%.$

Required. Advise NB Power on which lease proposal results in the lower cost for the computer

system when the associated cash flows are discounted at an annual interest rate of $8\%.$