Lease rate for which the lessor will break? even

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Netflix is considering the purchase of $48 million special software. This software will qualify for CCA deductions at a rate of? 100%. Netflix estimates its marginal tax rate to be? 10% over the next five? years. Netflix considers leasing the software instead. Suppose Netflix and the lessor face the same? 8% borrowing? rate, but the lessor has a? 40% tax rate. Assume the software is worthless after five?years, the lease term is five? years, and the lease qualifies as a true tax lease.

a. What is the lease rate for which the lessor will break? even?

b. What is the gain to Netflix with this lease? rate?

c. What is the source of the gain in this? transaction?

Reference no: EM132000520

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