93.000. The CCA rate for this asset is 32% The asset's useful life is two years after which it will be worth rate on ordinary income is 42%. The interest rate on risk-free cash flows is 10%. Assume payments are m se payments will make the lessee and the lessor equally well off, assuming payments are made at the em nd intermediate calculations. Round the final answer to 2 decimal pleces. Omit $ sign in your respor ent $ 5865106 ral condition that will make the value of a lease to the lessor the negative of the value to the lessee. = T>tessee - T>Lessee = T>Lessee

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter19: Lease Financing
Section: Chapter Questions
Problem 7MC: (1) Assume that the lease payments were actually 280,000 per year, that Consolidated Leasing is also...
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An asset costs $693,000. The CCA rate for this asset is 32%. The asset's useful life is two years after which it will be worth $59,000
The corporate tax rate on ordinary income is 42%. The interest rate on risk-free cash flows is 10%. Assume payments are made at the
end of the year.
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? (Do not round intermediote calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
Before tax payment
$ 5865106
b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee.
O TLessor Tstessee
O TLessor T>Lessee
O TLessor T>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? (Do not
round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
c-2. Assume that the lessor is in the 42% tax bracket. What would the lease payment have to be for lessor to be indifferent to the
lease? (Do not round intermediate colculations. Round the final answer to 2 decimal places. Omit S sign in your response.)
Indifference lease payment
Indifference lease payment
Transcribed Image Text:An asset costs $693,000. The CCA rate for this asset is 32%. The asset's useful life is two years after which it will be worth $59,000 The corporate tax rate on ordinary income is 42%. The interest rate on risk-free cash flows is 10%. Assume payments are made at the end of the year. 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? (Do not round intermediote calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Before tax payment $ 5865106 b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee. O TLessor Tstessee O TLessor T>Lessee O TLessor T>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? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) c-2. Assume that the lessor is in the 42% tax bracket. What would the lease payment have to be for lessor to be indifferent to the lease? (Do not round intermediate colculations. Round the final answer to 2 decimal places. Omit S sign in your response.) Indifference lease payment Indifference lease payment
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