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Quartz Corporation is a relatively new firm. Quartz has experienced enough losses during its early years to provide it with at least eight years of
Quartz Corporation is a relatively new firm. Quartz has experienced enough losses during its early years to provide it with at least eight
years of tax loss carryforwards. Thus, Quartz's effective tax rate is zero. Quartz plans to lease equipment from New Leasing Company.
The term of the lease is five years. The lease payments are made at the end of each year. The purchase cost of the equipment is
$ and it would be depreciated straightline to zero over five years. New Leasing Company is in the percent tax bracket.
There are no transaction costs to the lease. Each firm can borrow at percent. Do not round intermediate calculations. Round the
final answers to decimal places. Omit $ sign in your response.
a What is Quartz's reservation price?
Reservation price
b What is New Leasing Company's reservation price?
Reservation price
$An asset costs $ and will be depreciated in a straightline manner over its threeyear life. It will have no salvage value. The
lessor can borrow at percent, and the lessee can borrow at percent. The corporate tax rate is percent for both companies.
Assume the lease payments are made at the end of
each year. Do not round intermediate calculations. Round the final answers to decimal places. Omit $ sign in your response.
a This part of the question is not part of your Connect assignment.
b What lease payment amount will make the lessee and the lessor equally well off?
Lease payments $
c Assume that the lessee pays no taxes and the lessor is in the percent tax bracket. For what range of lease payments does the
lease have a positive NPV for both parties?
Range more than $
but less than $
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