An asset costs $86.87. Only straight line depreciation is allowed for this asset. The asset’s useful life is two years. It will have no salvage value. The corporate tax rate on ordinary income is 34 percent. The interest rate on risk free cash flows is 10 percent.
a. What set of lease payments will make the lessee and the lessor equally well off?
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. Assume that the lessee pays no taxes and the lessor is in the 34 percent tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?