An asset costs $780,000 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 6.1 percent and the lessee can borrow at 8.6 percent. The corporate tax rate is 24 percent for both companies. a. What would the lease payment have to be to make both the lessor and lessee indifferent about the lease? (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 pays taxes. 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 $780,000 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 6.1 percent and the lessee can borrow at 8.6 percent. The corporate tax rate is 24 percent for both companies. a. What would the lease payment have to be to make both the lessor and lessee indifferent about the lease? (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 pays taxes. 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
Related questions
Question
Nikul
Transcribed Image Text:An asset costs $780,000 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 6.1 percent and the
lessee can borrow at 8.6 percent. The corporate tax rate is 24 percent for both
companies.
a. What would the lease payment have to be to make both the lessor and lessee
indifferent about the lease? (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 pays taxes. 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.)
a.
Lease payment
b. Lease payment range
to
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education