A machine costs $660,000 and will be depreciated in a straight-line manner over its 3-year life. It will have no salvage value. The lessor can borrow at 7% and the lessee can borrow at 9%. The corporate tax rate is 35% for both companies. Assume the annual lease payment is made at the end of each year during the lease period.

1. How does the fact that the lessor and lessee have different borrowing rates affect the calculation of the NAL?
2. What set of lease payments will make the lessee and the lessor equally well off?
3. Assume that the lessee pays no taxes and the lessor is in the 35% tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?