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what is redwood s reservation price what is american s reservation price what is the 636232

Redwood Timberland Corporation is a furniture manufacturer that is considering installing a milling machine for $420,000. The machine will be straight line depreciated over seven years and will be worthless after its economic life. Redwood has been financially distressed and thus the company does not appear to get tax shields over the next seven years. American Leasing Company has offered to lease the machine over seven years. The corporate tax rate for Redwood is 35 percent. The appropriate before tax interest rate is 6 percent for both firms. Lease payments occur at the beginning of the year. What is Redwood”s reservation price? What is American”s reservation price? What is the negotiating range of the lease?

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