(b) Eir-Tel, Inc. is a telecommunication services providerlooking to expand to a new territory Z. It is analyzing whether itshould install its own telecom towers or lease them out from aprominent tower-sharing company X-share, Inc. Leasing out 100towers would involve payment of €5,000,000 per year for 5 years.Erecting 100 new towers would cost €18,000,000 including the costof equipment and installation, etc. The company has to obtain along-term secured loan of €418,000,000 at 5% per annum. Owning atower has some associated maintenance costs such as security, powerand fueling, which amounts to €10,000 per annum per tower. Thecompany’s tax rate is 40% while its long-term weighted average costof debt is 6%. The tax laws allow straight-line depreciation for 5years. Determine whether the company should erect its own towers orlease them out. [14 marks]
