An asset costs $1,500,000 and will be depreciated in a straight-line manner over its five-year life. It will have no salvage value. The corporate tax rate is 30 percent, and the appropriate interest rate is 10 percent.

a.What set of lease payments will make the lessee and the lessor equally well off.(6 marks)

b.Assume that the lessee pays no taxes and the lessor is in the 30 percent tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?(7 marks)