Pronghorn Inc. owns and operates a number of hardware stores inthe New England region. Recently, the company has decided to locateanother store in a rapidly growing area of Maryland. The company istrying to decide whether to purchase or lease the building andrelated facilities. Purchase: The company can purchase the site,construct the building, and purchase all store fixtures. The costwould be $1,861,400. An immediate down payment of $406,400 isrequired, and the remaining $1,455,000 would be paid off over 5years at $354,200 per year (including interest payments made at endof year). The property is expected to have a useful life of 12years, and then it will be sold for $508,400. As the owner of theproperty, the company will have the following out-of-pocketexpenses each period. Property taxes (to be paid at the end of eachyear) $41,860 Insurance (to be paid at the beginning of each year)26,960 Other (primarily maintenance which occurs at the end of eachyear) 17,170 $85,990 Lease: First National Bank has agreed topurchase the site, construct the building, and install theappropriate fixtures for Pronghorn Inc. if Pronghorn will lease thecompleted facility for 12 years. The annual costs for the leasewould be $266,320. Pronghorn would have no responsibility relatedto the facility over the 12 years. The terms of the lease are thatPronghorn would be required to make 12 annual payments (the firstpayment to be made at the time the store opens and then eachfollowing year). In addition, a deposit of $104,900 is requiredwhen the store is opened. This deposit will be returned at the endof the 12th year, assuming no unusual damage to the buildingstructure or fixtures.

Compute the present value of lease vs purchase. (Currently, thecost of funds for Pronghorn Inc. is 11%.)