As a financial analyst for Muffin Construction, you have been asked to recommend the method of financing the acquisition of new equipment needed by the firm. The equipment has a useful life of 8 years. If purchased, the equipment, which costs $700,000 will be depreciated using straight line depreciation to a zero book value. If purchased, the needed funds can be borrowed at a 10% pretax annual rate. Muffins weighted after-tax cost of capital is 12%. The actual salvage value at the end of 8 years is expected to be $50,000. Muffins marginal tax rate is 40%. Annual, beginning of year lease payments would be $160,000.

1. A) Compute the Net Advantage to Leasing.
2. B)Should Muffin lease or own the equipment?