An asset costs $540,000 and will be depreciated in a straight-line manner over its three- year life. It will have no salvage value. The lessor can borrow at 6.5 percent and the lessee can borrow at 8 percent. The corporate tax rate is 23 percent for both companies. a. What lease payment will make the lessee and the lessor equally well off? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Assume that the lessee pays no taxes and the lessor is in the 23 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 answers to 2 decimal places, e.g., 32.16.)
An asset costs $540,000 and will be depreciated in a straight-line manner over its three- year life. It will have no salvage value. The lessor can borrow at 6.5 percent and the lessee can borrow at 8 percent. The corporate tax rate is 23 percent for both companies. a. What lease payment will make the lessee and the lessor equally well off? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Assume that the lessee pays no taxes and the lessor is in the 23 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 answers to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please help me with this question :) A detailed answer will be much appreciated.
![An asset costs $540,000 and will be depreciated in a straight-line manner over its three-
year life. It will have no salvage value. The lessor can borrow at 6.5 percent and the
lessee can borrow at 8 percent. The corporate tax rate is 23 percent for both companies.
a. What lease payment will make the lessee and the lessor equally well off? (Do not
round intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
b. Assume that the lessee pays no taxes and the lessor is in the 23 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 answers to 2 decimal places, e.g., 32.16.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8758792-259c-4895-85a9-b0a08a7edb94%2F6ecd7827-38ec-4e92-8ad2-b9a0a9b93c47%2Fffef8zq_processed.png&w=3840&q=75)
Transcribed Image Text:An asset costs $540,000 and will be depreciated in a straight-line manner over its three-
year life. It will have no salvage value. The lessor can borrow at 6.5 percent and the
lessee can borrow at 8 percent. The corporate tax rate is 23 percent for both companies.
a. What lease payment will make the lessee and the lessor equally well off? (Do not
round intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
b. Assume that the lessee pays no taxes and the lessor is in the 23 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 answers to 2 decimal places, e.g., 32.16.)
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