The solution should be shown as calculator keystrokes (BA II Plus). No work shown in an Excel form.

11. A company is planning to move to a larger ofce and is trying to decide if the new ofce should be owned or leased. Annual cash flows for owning versus leasing are estimated as follows. Assume that the cash ows from operations will remain constant over a 10-year holding period. If purchased, the company will invest $750,000 in equity and nance the remainder with an interest-only loan that has a balloon payment due in year 10. The company's marginal income tax rate is 30% and the after-tax cash flow from sale of the property at the end of year 10 is expected to be $1,250,000. What is the incremental rate of return on equity to the company, if the property is owned instead of leased? Sales Cost of goods sold Gross income Operating expenses: Business Real Estate Lease payments Interest Depreciation Taxable income Tax Income after tax Plus: Depreciation After-tax cash ow Gin 800,000 200,000 600,000 100,000 30,000 0 80,000 45,000 345,000 103,500 241,500 45,000 286,500 Lease 800,000 200,000 600,000 100,000 30,000 120,000 0 0 350,000 105,000 245,000 0 245,000