A lease is likely to be most beneﬁcial to both parties when:
A)the lessor's tax rate is lower than the lessee's.
B)the lessor's tax rate is higher than the lessee's.
C)the lessor's tax rate is equal to the lessee's.
D)a lease cannot be beneﬁcial to both parties.
E)a lease always has zero NPV, so both parties always break even.

Question

Quizplus · Accepted Answer

A lease is most beneficial to both parties when the lessor's tax rate is higher than the lessee's. This is because the lessor can take advantage of tax deductions on the leased asset more effectively, potentially passing some of the savings on to the lessee in the form of lower lease payments.

A Lease Is Likely to Be Most Beneﬁcial to Both