An asset costs $675,000. The CCA rate for this asset is 25 percent. The asset’s useful life is two years after which it will be worth $50,000. The corporate tax rate on ordinary income is 35 percent. The interest rate on risk-free cash flows is 10 percent.

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?

b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee.

c. Assume that the lessee pays no taxes and the lessor is in the 35 percent tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?