a. What lease payment will make the lessee and the lessor equally well off? (Do

Question

a. What lease payment will make the lessee and the lessor equally well off? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Lease payment b. 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? (Enter your answers from lowest to highest. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Lease payment to

Explanation / Answer

A) From the view point of lesser (Owner of Asset) :-

Lease Installment should be such that the net expense of the lessor should be well paid off. So, if both the lessee and lessor are in equal tax bracket i.e. 34% then lease Installment should be 328720 (before tax), so that both lessor and lessee should be equally well of at this point.

B)

If lessee doesn't have to pay tax, and lessor has to pay tax @ 34% then lease payment should be in the following range :-

From $ 216955.20 to $ 328722

Investment 840000 Life 3 years Depreciation 280000 Intt paid 48720 (840000*5.8%) Total expense 328720 Less : Tax Benefit 111764.80 Net expense 216955.20

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