Assume that the A Corporation can obtain a 10-year noncancellable lease of $12,500 per year for an asset that it wants. The lease payment is due at the end of each year. The asset will have zero value at the end of 10 years.

The asset would cost $70,000 if purchased. It will earn gross cash flows of $13,500 per year.

Corporate taxes are 0.35. The asset fits in the 5-year Accelerated Cost Recovery System (ACRS) class life.

The corporation can borrow money repayable in equal installments at an aftertax cost of 0.07. It has a weighted average cost of capital of 0.15.

Assume that the firm has decided to acquire the asset. Assume that the firm is willing to use the after-tax borrowing rate.

The net tax cost of buying is __________.

The net tax cost of leasing is __________.

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Present Value of Depreciation of $1,000,000 of Assets Under ACRS (all the table values have a decimal in front of the first digit) Class Life Discount Rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 18 20 3 Years 979156 959001 939507 920645 902386 884707 867582 850988 834904 819309 804183 789507 775263 761435 748007 734962 709968 686343 5 Years 969618 940615 912912 886436 861118 836893 813701 791487 770198 749784 730201 711404 693353 676010 659340 643309 613040 584973 10 Years 949194 902132 858479 817933 780223 745105 712360 681788 653211 626466 601407 577900 555825 535071 515539 497136 463395 433263 15 Years 928486 864282 806496 754358 707203 664453 625607 590226 557930 528385 501299 476415 453508 432377 412848 394764 362398 334347