Maxine's is considering either purchasing or leasing a $600,000 piece of specialized equipment. The equipment has a life of 5 years, belongs in a 30% CCA class using the half-year rule for depreciation, and will have no residual value. The cost of debt is 12% for this purchase. A lease on the equipment for 5 years is priced at $150,000 a year. Maxine's corporate tax rate is 34%. The lessor has a tax rate of 35%.

What is Maxine's break-even lease payment amount?

What is the amount of annual depreciation Maxine's can claim in the first year if the firm

purchases the equipment?

What is the net advantage to leasing for Maxine?

What is the net advantage to leasing for the lessor?

In a leasing arrangement, the cash flows to the lessor are exactly the opposite of the cash

flows to the lessee. It would therefore appear that leasing is a zero-sum game where one party benefits at the expense of the other. Given this possibility, why should we expect leasing to occur?