Setting the Lease Price Raymond Rayon Corporation wants to expand its manufacturing facilities. Liberty Leasing Corporation has
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Setting the Lease Price Raymond Rayon Corporation wants to expand its manufacturing facilities. Liberty Leasing Corporation has offered Raymond Rayon the opportunity to lease a machine for $1,500,000 for six years. The machine will be fully depreciated by the straightline method. The corporate tax rate for Raymond Rayon is 25 percent, whereas Liberty Leasing has a corporate tax rate of 40 percent. Both companies can borrow at 8 percent. Assume lease payments occur at year-end. What is Raymond’s reservation price? What is Liberty’s reservation price? LO.1
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