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

$15 million in new manufacturing equipment. If it purchases theequipment, it will depreciate it on astraight-line basis over the fiveyears, after which the equipment will be worthless. It will also be responsible for maintenance expenses of

$0.75 million per year.Alternatively, it can lease the equipment for

$3.4 million per year for the fiveyears, in which case the lessor will provide necessary maintenance. AssumeP&G?s tax rate is

30% and its borrowing cost is

6.5%.

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

b. What is thebreak-even lease ratelong dash

that is, what lease amount couldP&G pay each year and be indifferent between leasing and financing apurchase?