Minhao Kang & Nancy Lu Leasing Limited (MNLL), a company specializing in leasing heavy-duty construction trucks, would like to determine the lease payment it quotes to the lessees. Assume that the truck costs $1,000,000, has a 4 year useful life and a CCA rate of 50%. It is assumed that after 4 years resale value would be $100,000 or $200,000 or $300,000. Probability that the resale value will be $200,000 is equal to the sum of the probabilities of resale value of $100,000 and $300,000. Probability that the resale value will be $100,000 is 50% more than the probability of resale value of $300,000. Before tax operating cost of $200,000 per year will be paid by MNLL.

The corporate tax rate is 40%, before tax cost of debt is 7%, risk free rate of return is 2%, and the cost of capital is 10%. CCA tax shield will be claimed at the end of the year, the lease payment will be at the beginning of the year, and operating cost will be incurred at the end of the year.

1)Determine the annual lease payment on a 4 year lease. Assume asset pool is closed, meaning any gain or loss on disposal will be taxable.

2)Suppose Nicholas Wong & Shengdong Sun Construction Inc. (NSC) would like to lease the above asset. NSC's corporate tax rate is 10%. It's before tax cost of debt is 6%, and cost of capital is 12%. Any gain or loss on disposal is taxable. What is the maximum lease payment NSC would be willing to make?

3)Within what range of values MNLL and NSC can make a deal?