The annual income is expected to be $800,000 with the annual operating cost to be $200,000. The resale value of the plant is estimated at $400,000 at the end of its 10-year life. The companys combined federal and state income tax rate is 40%. A straight-line depreciation can be used over the 10 years.

a) If the company uses the after-tax minimum attractive rate of return of 10%, should it lease or purchase the plant?

b) What is the breakeven rate of return of purchase versus lease?