Question: please do this question and bold/highlight the answer when you are done, so it is clear. thank you! Suppose Procter and Gamble (P&G) is considering
please do this question and bold/highlight the answer when you are done, so it is clear. thank you!
Suppose Procter and Gamble (P\&G) is considering purchasing $17 million in new manufacturing equipment. If it purchases the equipment, it will depreciate it on a straight-line basis over the five years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $0.50 million per year. Alternatively, it can lease the equipment for $3.8 million per year for the five years in which case the lessor will provide necessary maintenance. Assume P\&G?s tax rate is 40% and its borrowing cost is 6.5%. a. What is the NPV associated with leasing the equipment versus financing it with the lease equivalent loan? b. What is the break-even lease rate-that is, what lease amount could P\&G pay each year and be indifferent between leasing and financing a purchase
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