Your boss asks you to review an option to lease an equipment storage facility that the firm needs. You are to compare it with the purchase price of the facility. The following information are pertinent to your decision: The facility will be needed for ten years If the facility is leased, the lessor will conduct maintenance; if purchased, your firm must conduct maintenance Facility maintenance is expected to cost $67,000 per year The cost to lease the facility is $325,000 per year at the beginning of each year The purchase price of the facility is $5,000,000 and the market value at the end of ten years is expected to be $6,000,000 The before-tax cost of debt is 9%, and the tax rate is 40% The companys current EBIT is $2,000,000 (before leasing or purchasing the facility)

Assuming that the facility has a ten-year depreciation life for tax purposes (i.e. it can be fully depreciated over ten-years), compute the NPV for each option based on the cost, indicate your decision (round to nearest $1,000). Please do on Excel and show formulas and functions.

A. BUY; BUY NPV = -1,610,000, LEASE NPV = -1,662,000

B. None of them

C. LEASE; LEASE NPV = -1,484,000, BUY NPV = -1,788,000

D. LEASE; LEASE NPV = -1,610,000, BUY NPV = -1,662,000

E. BUY; BUY NPV = -1,484,000, LEASE NPV = -1,788,000

Assuming that the facility has a seven-year depreciation life for tax purposes (i.e. it will not be fully depreciated by end of ten years), compute the NPV for each option and based on the cost, indicate your decision (round to nearest $1,000). Please do on Excel and show formulas and functions.

A. BUY; NPV = -1,484,000, LEASE NPV = -1,645,000

B. None of them

C. BUY; BUY NPV = -1,519,000, LEASE NPV = -1,610,000

D. LEASE; LEASE NPV = -1,484,000, BUY NPV = -1,645,000

E. LEASE; LEASE NPV = -1,519,000, BUY NPV = -1,610,000