What set of lease payments will make the lessee and the lessor equally well off, ssuming payments are made at the end of the year? . Show the general condition that will make the value of a lease to the lessor the egative of the value to the lessee. . Assume that the lessee pays no taxes and the lessor is in the 35% tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 9P
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An asset costs $675,000. The CCA rate for this asset is 25%. The asset's useful life is
two years after which it will be worth $50,000. The corporate tax rate on ordinary
income is 35%. The interest rate on risk-free cash flows is 10%.
Required:
a. What set of lease payments will make the lessee and the lessor equally well off,
assuming payments are made at the end of the year?
b. Show the general condition that will make the value of a lease to the lessor the
negative of the value to the lessee.
c. Assume that the lessee pays no taxes and the lessor is in the 35% tax bracket. For
what range of lease payments does the lease have a positive NPV for both parties?
Transcribed Image Text:An asset costs $675,000. The CCA rate for this asset is 25%. The asset's useful life is two years after which it will be worth $50,000. The corporate tax rate on ordinary income is 35%. The interest rate on risk-free cash flows is 10%. Required: a. What set of lease payments will make the lessee and the lessor equally well off, assuming payments are made at the end of the year? b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee. c. Assume that the lessee pays no taxes and the lessor is in the 35% tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?
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