Question: 15-7.Lease versus Buy (TSC) requires advanced controller software for its network monitoring system. The software can be purchased for $900,000 or leased out by (VLI)

15-7.Lease versus Buy

(TSC) requires advanced controller software for its network monitoring system. The software can be purchased for $900,000 or leased out by (VLI) over 3 years at $335,000 per year. The software will be obsolete and will have no value after 3 years. Since TSC will be operating at approximately break-even for the foreseeable future, its tax rate will be close to 0. TSC can borrow at 13%. VLI can borrow at 7%, and its tax rate is 35%. Assume that the software falls into Class 12 with a CCA rate of 100%. (Note that the half-year rule applies for software.)

Please show financial calculator inputs

What is the NAL for TSC?
Answer: NAL = $6,186
What is the NPV of the lease for VLI?
Answer: NPV_Lease = $19,968
What is the minimum lease payment that VLI can charge and still wish to write the lease? (Hint: the minimum lease payment acceptable to VLI occurs when the NPV of the lease equals 0.)
Answer: $324,301

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