An asset costs $450,000 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 4.5 percent and the lessee can borrow at 7.5 percent. The corporate tax rate is 34 percent for both companies.
a. What would the lease payment have to be to make both the lessor and lessee indifferent about the lease?
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?