Under what conditions will the lessor’s NPV be the negative of the lessee’s NAL?

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Under what conditions will the lessor’s NPV be the negative of the lessee’s NAL?

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Under what conditions will the lessor’s NPV be the negative of the lessee’s NAL?

Explanation & AnswerSolution by a verified expert

Explanation

Conditions under which the lessor's net present value (NPV) be the negative of lessee's NAL are:

Leasing provides net benefit to both the parties, lessor and lessee in terms of tax or otherwise.
Inputs to the lessee and lessor are identical such as residual values, borrowing rates and tax rates.

Verified Answer

The lessor's NPV can be negative of a lesse's NAL under the following conditions:

Leasing provides net benefit to both the parties, lessor and lessee.
Inputs used by the lessee and lessor for the leased asset should be identical.

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