You have been assigned the task of analyzing whether to purchase or lease some transportation equipment for your company. The analysis period is six? years, and the base year is year zero ?(b=?0). Other pertinent information is given in the following table. The contract terms for the lease specify a cost of ?$300,000 in the first year and $200,000 annually in years two through six? (the contract,? i.e., these? rates, does not cover the annual expense? (items). The? after-tax MARR? (not including? inflation) is 11.321?% per year (ir?). The general inflation rate ?(f?) is 6?%. The effective income tax rate ?(t?) is 38?%. Assume the equipment is in the MACRS? (GDS, 20.00%,? 32.00%, 19.20%,? 11.52%, 11.52%,? 5.76%) five-year property class. Which alternative is? preferred? (Use an? after-tax, actual dollar analysis and the FW? criterion.) Assume that all the payments are made at the end of corresponding year.

Cash Flow Item Capital investment MTV at end of six years Annual operating, insurance, and other expenses Annual maintenance expenses Estimate in Year-0 Dollars Purchase Lease $600,000 80,000 26,000 $26,000 32,000 32,000 Best Estimate of Price Change per year) 2%