Suppose Procter and Gamble(P&G) is considering purchasing $ 12

$12 million in new manufacturing equipment. If it purchases theequipment, it will depreciate it on astraight-line basis over the fiveyears, after which the equipment will be worthless. It will also be responsible for maintenance expenses of

$1.50 million per year.Alternatively, it can lease the equipment for

$2.7 million per year for the fiveyears, in which case the lessor will provide necessary maintenance. AssumeP&G?s tax rate is

40% and its borrowing cost is

6.0%.

a. What is the NPV associated with leasing the equipment versus financing it with the lease equivalentloan?

b. What is thebreak-even lease ratelong dash

that is, what lease amount couldP&G pay each year and be indifferent between leasing and financing apurchase? please show how you derived at the answers.