What would the lease payment have to be for lessor

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Problem - An asset costs $590,000. The CCA rate for this asset is 29%. The asset's useful life is two years after which it will be worth $57,500. The corporate tax rate on ordinary income is 39%. The interest rate on risk-free cash flows is 10%. Assume payments are made at the end of the year.

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-1. Assume that the lessee pays no taxes. What would the lease payment have to be for lessee to be indifferent to the lease?

c-2. Assume that the lessor is in the 39% tax bracket. What would the lease payment have to be for lessor to be indifferent to the lease?

Reference no: EM132791645

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