The equipment costs $1,000,000, and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10 percent interest rate. Although the equipment has a six-year useful life, it is classified as a special-purpose computer, so it falls into the MACRS three-year class. If the system were purchased, a four-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after four years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing rapidly, the actual residual value is uncertain. As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Lewis that Consolidated Leasing would be willing to write a four-year guideline lease on the equipment, including maintenance, for payments of $260,000 at the beginning of each year. Lewis's marginal federal-plus-state tax rate is 40 percent. You have been asked to analyze the lease-versus-purchase decision, and in the process to answer the following questions: A. What is the present value cost of owning the equipment? First develop the cost of owning, begin by creating the depreciation schedule, depreciable basis = $1,000,000. d. Answer these questions one at a time to see the effect of the change on NAL. That is, starting with the original numbers you used for questions a. and b., what is the NAL if: 1. interest rate increases to 12 percent: The ending book value is $0, so tax must be paid on the full $200,000 salvage value: PV cost of owning (@12% 2. the tax rate falls to 34 percent 3. maintenance cost increases to $25,000 per year 4. residual value falls to $1,050,000 5. the system price increases to $1,050,000 E. Do the changes in d. make leasing more or less attractive? Explain.