What would be the net present value of the cash flows

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Question - Imagine you are a CFO for a company that is contemplating leasing some machinery for the operations. The machinery costs -$22,200,000 and would be depreciated straight-line to zero over 14 years. Because of the state of the economy, both you and the lessor are evaluating this project for four years. You can lease the machinery for $170,625 per year for the four years. Assume that your tax rate is 48% and that of the lessor is 49%. You can borrow at 13.5% before taxes.

NOTE: Regardless of the amount of years of depreciation, you will evaluate the project for four years

a. What would be the net present value of the cash flows for the lessee?

b. What would be the net present value of the cash flows for the lessor?

c. What would be the maximum payment that a lessee would be willing to pay?

d. What would be the minimum payment that a lessor would be willing to accept?

e. Would there be a deal between the lessee and lessor?

Reference no: EM132937127

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