I am doing a case study which is attached. I need help solving problem 9.
Based on a 4-year use of the asset, a 7.2 percent after-tax discount rate on the cash flows of the lessee, and a 12 percent after-tax discount rate on the cash flows of the lessor (that is, the original conditions), you should have found that the lease is advantageous to both Agro-Chem and Lonestar. Is there a range of lease payments that would be acceptable to both the lessor and the lessee? At which end of the range do you think the actual payment would be set? If you are using the spreadsheet model, specify the actual range of payments.
The calculations are in the attached file. The range is 325 to 507.
The maximum value comes from equating the PV of the lease ...
Solution for Lease or Buy Case where Agro-Chem is deciding whether to purchase or lease the equipment from Lonestar