Question 1 (21 marks) Black Inc. has decided to buy a new equipment that costs USD 3,200,000. The equipment will be depreciated on a straight-line basis down to zero. The corporate tax rate is 16% and Black Inc. can borrow at 9%. White Leasing Corp. is willing to lease the same equipment to Black Inc. for the lease payments of USD 0.95 million per year are due at the beginning of each of the four years of the lease. a. Should Black Inc. lease the equipment or buy it outright? (15 marks) b. What is the annual lease payment that will make Black Inc. indifferent to whether it leases the equipment or buys it? (6 marks) Question 2 (20 marks) A machine costs $630,000 and will be depreciated in a straight-line manner over its 3-year life. It will have no salvage value. The lessee can borrow at 8%. The corporate tax rate is 16% for both companies. a. What set of lease payments will make the lessee and the lessor equally well off? (10 marks) b. Assume that the lessee pays no taxes and the lessor is in the 16% tax bracket. For what range of lease payments does the lease have a positive NPV for both parties? (10 marks)