An asset costs $682,000. The CCA rate for this asset is 32%. The asset's useful life is two years after which it will be worth $53,500. The corporate tax rate on ordinary income is 42%. The interest rate on risk-free cash flows is 10%. Assume payments are made at the end of the year. a. What set of lease payments will make the lessee and the lessor equally well off, assuming payments are made at the end of the year? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.) Before tax payment $ b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee. OTLessor Lessee TLessor = T>Lessee OTLessor > 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 "$" sign in your response.) Indifference lease payment c-2. Assume that the lessor is in the 42% tax bracket. What would the lease payment have to be for lessor to be indifferent to the lease? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.) Indifference lease payment
An asset costs $682,000. The CCA rate for this asset is 32%. The asset's useful life is two years after which it will be worth $53,500. The corporate tax rate on ordinary income is 42%. The interest rate on risk-free cash flows is 10%. Assume payments are made at the end of the year. a. What set of lease payments will make the lessee and the lessor equally well off, assuming payments are made at the end of the year? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.) Before tax payment $ b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee. OTLessor Lessee TLessor = T>Lessee OTLessor > 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 "$" sign in your response.) Indifference lease payment c-2. Assume that the lessor is in the 42% tax bracket. What would the lease payment have to be for lessor to be indifferent to the lease? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.) Indifference lease payment
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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Transcribed Image Text:An asset costs $682,000. The CCA rate for this asset is 32%. The asset's useful life is two years after which it will be worth $53,500.
The corporate tax rate on ordinary income is 42%. The interest rate on risk-free cash flows is 10%. Assume payments are made at the
end of the year.
a. What set of lease payments will make the lessee and the lessor equally well off, assuming payments are made at the end of the
year? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.)
Before tax payment
$
b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee.
OTLessor <T>Lessee
TLessor = T>Lessee
OTLessor > 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 "$" sign in your response.)
Indifference lease payment
c-2. Assume that the lessor is in the 42% tax bracket. What would the lease payment have to be for lessor to be indifferent to the
lease? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.)
Indifference lease payment
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