San Diego State University Operations And Supply Chain Management Assignment Help - Present value

Question - Lease versus Purchase Decision. Sanchez Co. is considering a capital lease providing additional warehouse
space for its department stores. The price of the facility is $330,000. The leasing arrangement requires
beginning-of-year payments which, for tax purposes, cannot be deducted until the end of the year. The life of the
lease is 5 years and the facility has zero expected salvage value. The lessor wants a 5 percent return on its lease.
Assume that the firm is in the 40 percent tax bracket and its after-tax cost of debt is currently 7 percent. Find the
present value of the after tax cash outflows using the after-tax cost of debt as the discount rate. Round your
answer to the nearest dollar.

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