A firm is considering leasing some equipment for 10 years with equal annual lease payments. The equipment would cost $120,000 to purchase and would be depreciated straight-line over 10 years to a zero salvage value. The lessee and lessor face the same pretax borrowing rate of 7 percent but face different levels of taxation. The tax rate faced by the lessee is 19 percent while the tax rate faced by the lessor is 26 percent.

Calculate the maximum lease payment that is acceptable to both parties.

Answer rating: 100% (QA)

Heres how to calculate the maximum lease payment acceptable to both parties in this scenario 1 Define Variables Equipment Cost EC 120000 Lease Term LT 10 years Lessee Tax Rate TL 19 as a decimal 019 L... View the full answer