I don't understand this. Please thoroughly explain. I$\text{'}$m trying to complete with paper and pencil. Please fully explain how I show calculate not understanding how.P$17-4$ Lease versus purchase JLB Corporation is attempting to determine whether to lease or

purchase research equipment. The firm is in the $21\%$ tax bracket, and its after$-$tax cost of debt is

currently $8\%.$ The terms of the lease and of the purchase are as follows:

Lease Annual end$-$of$-$year lease payments of $$25,200$ are required over the three$-$year llfe of the lease. All

maintenance costs will be paid by the lessor; insurance and other corts will be bome by the lessee. The

lesse will exercise its option to purchase the asset for $$5,000$ at termination of the lease.

Purchase The equipment conts $$60,000$ and can be financed with a $14\%$ loan requiring annual end$-$of$-$year

payments of $$25,844$ for three years. JLB will depreciate the equipment under MACRS ubing a three$-$year

recovery period. $($See Table $4\mathrm{.}2$ ior the applicable depreciation percentages.$)$ Jt$\mathrm{.}3$ will pay $$1,800$ per year

for a service contract that sovers all maintenance sosts; insurance and other sosts will be bome by the J$.$B$,$

who plans to keep the equipment and use it beyond its three$-$year recovery period.

a$.$ Calculate the after$-$tax cash outflows associated with each alternative.

b$.$ Calculate the present value of each stream, using the after$-$tax cost of debt.

c$.$ Which alternative$-$lease or purchase$-$would you recommend? Why?

Table $4\mathrm{.}2$ Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four

Property Classes