Your company is considering leasing or purchasing an asset that costs $1,000,000. The asset, if purchased, will be depreciated on a straight-line basis over six years to a zero residual value. A leasing company is willing to lease the asset for $300,000 per year; the first payment on the lease is due at the time the lease is undertaken (i.e., year 0), and the remaining five payments are due at the beginning of years 1 5. Your company has a tax rate Tc=40% and can borrow at 10% from the bank.

A	B	C	D	E	F	G	H
1	Part a
2	Asset cost	1,000,000
3	Interest rate	10%
4	Lease rental payment	300,000
5	Annual depreciation	166,667	#NAME?
6	Tax rate	40%
7
8	Year	0	1	2	3	4	5	6
9	After-tax cash flows from leasing
10	After-tax lease rental
11
12	After-tax cash flows from buying the asset
13	Asset cost
14	Depreciation tax shield
15	Net cash flow from buying
16
17	Differential cash flow
18	Lease minus buy
19
20	IRR of differential cash flow
21
22	Decision??		#NAME?
23
24	Break-even IRR