Problem

You are considering a five-year lease of office space for R&D personnel. Once signed,...

You are considering a five-year lease of office space for R&D personnel. Once signed, the lease cannot be canceled. It would commit your firm to six annual $100,000 payments, with the first payment due immediately. What is the present value of the lease if your com­pany’s borrowing rate is 9% and its tax rate is 35%? (Note: The lease payments would be tax-deductible.)

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