Longview Corporation started operations on March 1, 2019. It needs to acquire a special piece of equipment for its manufacturing operations. It is evaluating the following two options: 

Option 1: Lease the equipment for eight years. Lease payments would be $11,950 per year, due at the beginning of each fiscal year (March 1). Longview’s incremental borrowing rate is 6%. The interest rate implicit in the lease is not readily determinable. There is no bargain purchase or renewal option. Longview is responsible for all costs of operating the equipment. 

Option 2: Purchase the equipment for $78,900 by borrowing the full purchase amount at 6% over eight years. This price is considered the fair value of the equipment. Payments are due at the end of each fiscal year (February 28). 

The equipment has a useful life of eight years and would be depreciated on a straight-line basis. No residual value is expected to exist at the end of eight years. 

Required: 

a. Calculate the present value of the lease payments under Option 1. 

b. Calculate the payment that would be required under the purchase option (Option 2). 

c. Calculate and briefly discuss the financial impact of each option on the non-current assets, total liabilities, and net income of Longview for the first year of operations. Assume all payments were made when due. Show your calculations. 

d. Indicate which option you would recommend for Longview. Provide one explanation to support your recommendation.