Use the following information for the next two problems:

Top management of Markel Company is considering whether to lease or purchase an aircraft

to transport them around the country. They are in the $40$ percent tax bracket and their after$-$

tax cost of debt is $7$ percent. The estimated after$-$tax cash flows for the lease and purchase

alternatives are given below. $($The Year $5$ purchase cash flow is positive since they rent out

the aircraft for part of that year.$)$

Given the above cash outflows, calculate the present value of the after$-$tax cash flows of the

lease alternative using the after$-$tax cost of debt.

Given the above cash outflows:

a$)$ Calculate the present value of the after$-$tax cash flows of the purchase alternative using the

after$-$tax cost of debt. $($Hint: if you are confused about using NPV for this problem, you can

calculate the PV of each cash flow and add them together. Keep in mind that there are

outflows and inflows.$)$

b$)$ Which alternative do you choose?