Suppose Procter and Gamble? (P&G) is considering purchasing

$10

million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it on a?straight-line basis over the five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of

$1.75

million per year.?Alternatively, it can lease the equipment for??

$2.3

million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G?s tax rate is

35%

and its borrowing cost is

7.5%.

a. What is the NPV associated with leasing the equipment versus financing it with the lease equivalent? loan?

b. What is the? break-even lease

ratelong dashthat

?is, what lease amount could? P&G pay each year and be indifferent between leasing and financing a? purchase?