a) Pele Corp. is a professional leasing company. The leasing manager has to evaluate some lease agreements under the following conditions:

The companys marginal federal-plus-state income tax rate is 35%.

The company has alternative investment options of similar risk that yield 6.50%.

Assuming all other factors and values are constant among these leases, from the lessors perspective, which of the following is the best lease?

1. A lease that has a MIRR of 3.13%.

2. A lease that has an NPV of $45,000.

3. A lease that has an IRR of 3.73%.

4. A lease that generates an after-tax rate of return of 5.53%.

b) You probably noticed that lease analysis seems a bit like capital budgeting analysis because the cash flows are estimated over the life of the project or lease. The present value of the cash flows dictates the managers decision. Are cash flows that are estimated in lease analysis more or less risky than capital budgeting cash flows?

1. More risky

2. Less risky