Question 3 The managers in Rose Inc. are considering buying a new machine that costs a total of $5 million dollars. This machine will qualify for accelerated depreciation: 20% can be expensed immediately, followed by 32%, 19.2%, 11.52%, 11.52% and 5.76% over the next five years. Rose has had substantial tax loss carry forwards in recent years. Consequently, the managers estimate that the marginal tax rate will only be 10% over the next five years. Because of the very little tax benefit from the depreciation expense, the managers are also considering leasing the machine instead. Even though Rose and the lessor face the same 8% borrowing rate, the lessor has a 40% marginal tax rate. Assume that the machine is worthless after five years, the lease term is five years, and the lease would qualify as a true tax lease. (a) If Rose's annual lease payments are $1.2 million, calculate the amount of the lease- equivalent loan. (b) Given your calculations above, does leasing seem optimal for Rose? (9 marks) (1 marks) (Total = 10 marks) L