Reference no: EM131923904

ABC Corp. is considering leasing an asset from XYZ Corp. Here are the relevant facts: Asset Cost $1,000,000 Depreciation Schedule Year 1 20% 2 32% 3 19.20% 4 11.52% 5 11.52% 6 5.76% Lease term – 6 years Lease payment $200,000 per year, from year 1 through 6 Tax rates – ABC: Tc = 0% (ABC has a tax-loss carryforwards which prevent it from utilizing any additional tax shields), XYZ: Tc = 40% ABC’s interest cost is 10% and XYZ’s is 7%. a. Show that is will be advantageous for ABC to Lease the asset and for XYZ to purchase the equipment and lease it out. b. Find the maximum ABC will be willing to pay for this lease c. Show the minimum XYZ will take for this lease.