Walton Nursing Home Is Evaluating A Guideline Lease Agreement

b) Suppose the lessor is in the 40 per cent tax bracket. In addition, the owner`s investment alternatives with a similar risk generate 8 percent before taxes. Should the owner write the lease? Walton Nursing Home (WNH) is reviewing a laundries policy contract that costs $250,000 and falls into the three-year macrs class. The house can be at an interest rate of 8% on a four-year loan if WHN decides to borrow and buy rather than rent. The laundry has an economic duration of four years and its estimated residual value is $50,000 at the end of the fourth year. If WHN buys the equipment, it would buy a maintenance contract that costs $5,000 a year and is payable at the beginning of each year. Lease conditions, including maintenance, require a lease payment of $71,000 at the beginning of each year. The WNH tax rate is 40 per cent. c) In what lease payment would the tenant be indifferent between ownership and leasing?.