A1 Corp. is considering leasing an machine from B2, Inc.

Cost of Machine 1,000,000

Depreciation 5-year MACRS method with 0 residual value

Lease term (in years) 6

Lease Payment 200000 at the beginning of years 0, 1, ..., 5.

Tax Rate for A 10.0% A1 has tax-loss which prevents it from additional tax shield

Tax Rate for B2 40.0%

A1 Cost of Borrowing 10.0%

B2 Cost of Borrowing 7.0%

a. Based on the information given, is it advantageous for both A1 Corp.to lease the machine and for B2 Inc. to purchase the asset in order to lease it out to A1?

b. If the answer in part a is yes, then what is the maximum lease payment which A1 will pay and the minimum rental which B2 will accept?