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Lease versus purchase JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 22% tax bracket, and its after-tax cost of debt is currently 9%. The terms of the lease and of the purchase are as follows: Lease Annual end-of-year lease payments of $32,000 are required over the three-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $4,500 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 3 under the lease option. Purchase The equipment costs $75,000 and can be financed with a 14% loan requiring annual end-of-year payments of $32,305 for three years. JLB will depreciate the equipment under MACRS using a three-year recovery period. (See for the applicable depreciation percentages.) JLB will pay $1,600 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The firm plans to keep the equipment and use it beyond its three-year recovery period. a. Calculate the after-tax cash outflows associated with each alternative. (Hint: Because insurance and other costs are borne by the firm under both alternatives, those costs can be ignored here.) b. Calculate the present value of each stream, using the after-tax cost of debt. c. Which alternative-lease or purchase-would you recommend? Why? Data table convention