A company is planning to move to a larger office and is trying to decide if the new office

should be owned or leased. Annual cash flows for owning versus leasing are estimated as

follows. Assume that the cash flows from operations will remain constant over a $10-$year

holding period. If purchased, the company will invest $$400,000$ in equity and finance the

remainder with an interest$-$only loan that has a balloon payment due in year $10.$ The

company$$s marginal income tax rate is $30\%.$ What would the equity after$-$tax cash flow from

the sale of the property at the end of $10$ years have to be to produce a $10\%$ incremental rate of

return on equity with owning instead of leasing?

Own Lease

Sales $600,000600,000$

Cost of goods sold $300,000300,000$

Gross income $300,000300,000$

Operating expenses:

Business $55,00055,000$

Real Estate $35,00035,000$

Lease payments $065,000$

Interest $50,0000$

Depreciation $30,0000$

Taxable income $130,000145,000$

Tax $39,00043,500$

Income after tax $91,000101,500$

Plus: Depreciation $30,0000$

After$-$tax cash flow $121,000101,500$

Answer:$\_\_\_\_\_\_\_\_\_\_$