Instead of purchasing the machinery, your team, being experienced consultants, wishes to propose to VLT that they have another option which is leasing it. Coincidently, your other client, New Leasing Limited (NLL), may be a suitable lessor. On discussions, the executives at NLL have asked you to prepare a lease quotation that could be forwarded to VTL for consideration. For the purpose, NLL has provided the following information:

NLL can get a 5% discount on the purchase and installation price of the machinery.

They expect the life of the machinery to be twelve years with no salvage value after that. VTL may use this machinery for seven years, and NLL is confident that it can be leased to others after that.

NLL uses the straight-line method for calculating depreciation.

As the owner of the machinery, NLL is responsible for its annual maintenance cost. NLL's applicable tax rate is 30%.

(i) If the NLL's after-tax required rate of return is 12% per annum, what will be the minimum annual lease payment that NLL would charge? Consider that NLL requires lease payments to be made annually in advance.

(ii) Calculate the maximum annual lease payment that would make leasing a viable option for VTL?