Question

The Mikata Corporation is considering leasing a machine. The machine would cost $226,000 to buy and it would be depreciated straight-line to zero over five years. The machine will have zero salvage value in five years. Mikata can lease the equipment for five years, with the lease payment due at the beginning of each year. The firm can borrow at a rate of 6%. What is reservation price to the Lessor (i.e., min lease to Lessor)? What is the reservation price to the Lessee (i.e., max lease to Lessee)? Assume that Mikata has zero tax in the next few years, whereas the lessor pays tax at 15%. Min lease to Lessor = $49,338; Max lease to Lessee = $51,427 Min lease to Lessor = $49,338; Max lease to Lessee = $50,615 Min lease to Lessor = $51,004; Max lease to Lessee = $50,615 Min lease to Lessor = $51,004; Max lease to Lessee = $51,432 Min lease to Lessor = $51,004; Max lease to Lessee = $49,785

Answer 1