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Suppose Clorox can lease a new computer data processing system for $973,000 per year for five years. Alternatively it can purchase the system for $4.24 million. Assume Clorox has a borrowing cost of 7.1% and a tax rate of 25%, anc the system will be obsolete at the end of five years. a. If Clorox will depreciate the computer equipment on a straight-line basis over the next five years, and if the lease qualifies as a true tax lease, is it better to lease or finance the purchase of the equipment? b. Suppose that if Clorox buys the equipment, it will use accelerated depreciation for tax purposes. Specifically, suppose it can expense 20% of the purchase price immediately and can take depreciation deductions equal to 32%, 19.2%,11.52%,11.52%, and 5.76% of the purchase price over the next five years. Compare leasing with purchase i this case. If it leases, the after-tax lease payments are $. (Round to the nearest dollar.) If it leases, the FCF of leasing versus buying is $ in year 0, in years 14, and $ in year 5 . (Round to the nearest dollar.) The NPV of Lease - Buy is \$ . (Round to the nearest dollar.) (Select from the drop-down menus.) Under these assumptions, the option is more attractive than the option. b. Suppose that if Clorox buys the equipment, it will use accelerated depreciation for tax purposes. Specifically, suppose it can expense 20% of the purchase price immediately and can take depreciation deductions equal to 32%,19.2%,11.52%,11.52%, and 5.76% of the purchase price over the next five years. Compare leasing with purchase in this case. For each year, complete the table below: (Round to the nearest dollar.)

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