Quantitative Problem 1: Findley FurnitureCompany must install $7.0 million of new equipment in one of itsplants. It can obtain a bank loan for 100% of the required amount.Alternatively, management believes it can arrange a lease. Assumethat the following facts apply:

1. The equipment falls in the MACRS 5-year class. The applicableMACRS rates are 20%, 32%, 19%, 12%, 11%, and 6%.
2. The lease includes maintenance, whereas if the equipment ispurchased, it would require maintenance provided by a servicecontract for $170,000 per year, payable at the end of theyear.
3. Findley’s federal-plus-state tax rate is 45%.
4. If the money is borrowed, the bank loan will be at a rate of11%, amortized in 5 equal installments to be paid at the end ofeach year.
5. The tentative lease terms call for end-of-year payments of$1.35 million per year for 5 years.
6. At the end of the lease term, the equipment will have anestimated salvage value of $800,000. At that time, Findley plans toreplace the equipment regardless of whether the firm leases orpurchases it.

What is the firm’s cost of owning the equipment? Enter youranswer in thousands. For example, an answer of $1,234,000 should beentered as 1,234. Do not round intermediate calculations. Roundyour answer to the nearest thousand dollars. Enter your answer as apositive number.
$   thousand