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Question: Artisan's is considering leasing a new computer. The lease terms include five annual payments of $1,500 with the first payment occurring when the lease is signed. The computer would cost $7,200 to buy and would be depreciated straight-line to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8 percent and has a tax rate of 35 percent. What is the cash flow from leasing relative to purchasing in Year 3?

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