1 Andrew and Gilstad (2005) write that ‘business schools typically teach that leasing is a zerosum game. However, the economic assumptions that lead to this belief often are not true. These incorrect assumptions have caused serious confusion and bias in lease evaluation for more than a generation.’ Explain this statement. Do you believe the authors are correct? Provide examples to illustrate your answer. (40 marks)

2 Parklead Leasing are a successful leasing company, specializing in the highest quality excavation equipment. They have a fleet of 300 vehicles and a repair and maintenance section. They purchase a new machine for £80,000 that they plan to lease for 6 years.
They forecast that maintenance, insurance and administrative costs of the lease will be constant at £10,000 per year. Parklead Leasing pays corporation tax of 23 per cent one year in arrears and the borrowing rate is 10 per cent on assets of this type. Depreciation is charged on machinery at 25 per cent reducing balance. What should be the minimum lease payment? (30 marks)

3 Ibro Tinmines plc requires the use of excavation machinery and estimates that it would cost them £100,000 to purchase the equipment. Alternatively, they could lease the equipment for 6 years from Parklead Leasing for £25,000 per year. If Parklead Leasing can buy the equipment for a discounted price of £80,000 evaluate the lease from the perspective of the lessee and the lessor. Ibro Tinmines will be expected to meet all repair and maintenance costs, the tax rate is 23 per cent paid one year in arrears, and the discount rate for projects of this type is 10 per cent. Depreciation is charged at 25 per cent reducing balance. It is expected that the equipment will be scrapped after 6 years. (30 marks)