Harris Corporation is evaluating whether to lease orpurchase equipment. Its tax rate is 25 percent. The purchase priceis $2.4 million, required modifications to the equipment will cost$100,000. The company would depreciate the equipment over 4 years,using straight-line depreciation. A 4-year lease calls for apayment of $750,000 at the beginning of each year.  Ifthe equipment is purchased, the company will borrow from its bankat an interest rate of 10 percent.
a. Calculate the cost of purchasing theequipment.
b. Calculate the cost of leasing theequipment.
c. Calculate the net advantage to leasing. Should thecompany purchase or lease the equipment?
