ABC Corp. is considering leasing an asset from XYZ Corp. Here are the relevant facts:

ABC?s interest costs are 10% and XYZ ? s interest costs are 7%. Show that it will be advantageous both for ABC to lease the asset and for XYZ to purchase the asset in order to lease it out to ABC.

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$1,000,000 Asset cost Depreciation schedule year 1: year 2: 20% 32% 19.20% year 3: year 4: year 5: year 6: 11.52% 11.52% 5.76% б уеars Lease term $200,000 per year, at the beginning of years 0, 1, ... , 5. Lease payment Asset residual value zero Tax rates ABC: Tc = 0% (ABC has tax-loss carryforwards which prevent it from utilizing any additional tax shields) XYZ: Tc = 40%