1. Assume that both the lessor and the lessee have the same interest and tax rates and there are no transaction costs. Given this, the best lease agreement results in:
n NPV of zero for both parties.
a benefit for the lessor and a zero gain for the lessee.
a benefit for the lessee and a zero gain for the lessor.
a benefit for both parties.
a loss for both parties.
2. Busters is considering leasing some new equipment for 5 years with annual payments of $27,500. The equipment would cost $115,000 to buy and would be depreciated straight-line to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8 percent and has a tax rate of 35 percent. What is the maximum lease payment Busters would be willing to pay?
$28,802.49
$23,708.03
$29,908.16
$24,840.00
$26,709.12