EquipLease Financial Services Ltd. is a specialized equipment leasing company that has been operating in the industrial equipment financing space…

EquipLease Financial Services Ltd. is a specialized equipment leasing company that has been operating in the industrial equipment financing space for over 15 years. The company's business model involves purchasing high-value machinery and leasing it to manufacturing companies, thereby earning returns through lease rentals while retaining ownership of the assets. The company has built a strong reputation for providing flexible financing solutions tailored to clients' cash flow patterns and business cycles. Their leasing arrangements help clients conserve capital while accessing state-of-the-art equipment. EquipLease has recently purchased a specialized CNC precision machine with the following informations: Purchase Cost:10,00,000 (paid upfront)Expected Useful Life: 4 yearsResidual/Salvage Value: Nil (technology becomes obsolete)Depreciation for Tax Purposes: Can be claimed by EquipLease under Straight line method (SLM) or Units of Production method(UOP)Lease Rentals earned by company is subject to tax.EquipLease's Cost of Capital: 10% per annumCorporate Tax Rate: 25% TechManufacture Industries Ltd., a growing precision engineering company, has approached EquipLease expressing interest in leasing this CNC machine. TechManufacture has provided detailed information about their expected utilization pattern: The machine's usage will follow a graduated ramp-up pattern based on TechManufacture's order book projections: Year Production Capacity Utilization Relative Units 1 Low (Initial phase) 1 unit 2 Medium 2 units 3 High 3 units 4 Peak 4 units This pattern is typical for businesses scaling up production with new equipment - starting slow as operators are trained and processes are optimized, then ramping up to full capacity. The Client wants the company to charge lease rentals based on the client's utilization pattern 1:2:3:4. Mr. Vikram Malhotra, the Chief Credit Officer at EquipLease, is tasked with structuring an appropriate lease arrangement. He faces several strategic decisions: iii. DETERMINE minimum lease rentals needed to recover the balance cost of investment after adjusting the Tax shields on the depreciation under both the depreciation methods if - EquipLease charge uniform (equal) rentals over 4 yearsLease rentals follow the client's utilization pattern (1:2:3:4)