Problem 1 Operating leases Acme has branched out to rentals of office furniture to start-up companies. Consider a $3,000 desk. Desks last for six years and can be depreciated on a five-year MACRS schedule (see the following table). Assume that lease rates for old and new desks are the same and that Acmes pretax administrative costs are $400 per desk per year. The cost of capital is 9% and the tax rate is 35%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. What is the break-even operating lease rate for a new desk? Table 1: MACRS Rates--Half-Year Convention

Year	3 years	5 years	7 years	10 years	15 years	20 years
1	33.33%	20.00%	14.29%	10.00%	5.00%	3.75%
2	44.45%	32.00%	24.49%	18.00%	9.50%	7.22%
3	14.81%	19.20%	17.49%	14.40%	8.55%	6.68%
4	7.41%	11.52%	12.49%	11.52%	7.70%	6.18%
5		11.52%	8.93%	9.22%	6.93%	5.71%
6		5.76%	8.92%	7.37%	6.23%	5.29%
7			8.93%	6.55%	5.90%	4.89%
8			4.46%	6.55%	5.90%	4.52%
9				6.56%	5.91%	4.46%
10				6.55%	5.90%	4.46%
11				3.28%	5.91%	4.46%
12					5.90%	4.46%
13					5.91%	4.46%
14					5.90%	4.46%
15					5.91%	4.46%
16					2.95%	4.46%
17						4.46%
18						4.46%
19						4.46%
20						4.46%
21						2.23%