End-of-year Examinations, 2019 FINC301-1982 (C) Question 5 Leasing Fission Ltd must choose between leasing or buying an indispensable machine. The machine costs $400,000 and will be depreciated straight-line to zero over 10 years. Fission Ltd's tax rate is 20 percent, and the firm can borrow at 6 percent. Solid Leasing Company has offered to lease the machine to Fission Ltd for payments of $45,000 at the start of each year. (Assume that tax is paid at the same time as expenditures are made.) But Solid Leasing Company also requires a security deposit of $40,000 to be paid at the start of the lease, refundable at the end. Solid Leasing Company's tax rate is 40% and it can borrow at 4 percent. Required: (a) (b) What is the Net Advantage to Leasing for Fission Ltd? (4 marks) What is the maximum lease payment Fission Ltd would be prepared to make each year if Fission were to lease? [Note that the values of inputs needed in Part (b) are substantially unchanged from what you have already calculated for use in Part (a)] (2 marks) What is the minimum lease payment acceptable to the Solid Leasing Company? (4 marks) TOTAL: 10 MARKS