$($CHAPTER $21)$

Coffeemania is considering leasing a coffee making machine for its recently opened store. The lease agreement requires $7$ lease payments in the

amount of $$6,300$ per year paid at the beginning of each year. Each coffee making machine's purchase price is $$38,000,$ and it depreciates straight$-$

line to zero value over the duration of the lease.

Coffeemania pays a $26\%$ tax rate on its corporate income. The company's annual borrowing rate is $4\%.$

Coffeemania needs to figure out whether leasing, rather than buying the coffee making machine, is the right way to go$.$ The necessary calculations

show that the incremental cash flow for "Year $0"$ equals positive $($i$.$e$.,>$ $$0$

the after$-$tax lease payment $($cash outflow$),$

It

the after$-$tax lease payment $($cash inflow$),$

It

doesn't include

the depreciation tax shield $($cash outflow$),$

It

the depreciation tax shield $($cash inflow$),$

It

the purchase price $($cash outflow$),$

It

the purchase price $($cash inflow$).$