Calculate the npv of leasing for col

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COL Inc. can either purchase an equipment for $650,000 or lease it from LEN Inc. by making 12 annual lease payments (paid at the beginning of the year) of $89,600. The equipment has CCA rate of 20% and will have salvage value of $56,000 at the end of year 12. Assume this asset is the only asset in the asset class for both companies. LEN's borrowing cost is 11% which is 1% lower than COL's. COL and LEN have tax rate of 15% and 40% respectively.

a) Calculate the NPV of leasing for COL.

b) Calculate the NPV of leasing for LEN.

c) Calculate the maximum and minimum annual lease payment acceptable to COL and LEN respectively.

Reference no: EM132714139

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