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Suppose Proctor? & Gamble? (P&G) is considering purchasing

$ 11$11

million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it for tax purposes on a? straight-line basis over five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of

$ 1.00$1.00

million per? year, paid in each of years 1 through 5. It can also lease the equipment under a true tax lease for

?$3.23.2

million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G's tax rate is

35 %35%

and its borrowing cost is

6.5 %6.5%.

a. What is the NPV associated with leasing the equipment versus financing it with the? lease-equivalent loan?

b. What is the? break-even lease

ratelong dash—that

?is, what lease amount could? P&G pay each year and be indifferent between leasing and financing a? purchase?

a. What is the NPV associated with leasing the equipment versus financing it with the? lease-equivalent loan?

The NPV is

?$669,489669,489.

?(Round to the nearest? dollar.)

b. What is the? break-even lease

ratelong dash—that

?is, what lease amount could? P&G pay each year and be indifferent between leasing and financing a? purchase?The? break-even lease rate is

?$nothing.

?(Round to the nearest? dollar.)

note tha answer for a) 669,489

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