Your firm is considering leasing a truck. The lease lasts for 4 years. The lease calls for 4 payments of $300,000 per year with the first payment occurring at the end of first year. The truck would cost $1,000,000 to buy and would be straight-line depreciated to a zero salvage value over 4 years. The actual salvage value is negligible. The firm can borrow at a rate of 10%. The corporate tax rate is 35%.

1. (a) What are the relevant incremental after-tax cash flows from leasing relative to purchasing in years 0-4?

2. (b) What is the NPV of the lease relative to the purchase?

3. (c) If the lease payment is made at the beginning of the year, what is the NPV of the lease relative to the purchase?

4. (d) From part (c), what is the maximum amount of lease payment that you can afford if the lease payment is made at the beginning of the year?