Technical Service Corp (TSC) requires advanced controller software for its network monitoring system. The software can be purchased for $900,000 or leased out by Vancouver Leasing Inc. (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.)
a. What is the NAL for TSC?
b. What is the NPV of the lease for VLI?
c. What is the minimum lease payment that VLI can charge and still wish to write the lease? (The minimum lease payment acceptable to VLI occurs when the NPV of the lease equals 0.)