Break even lease

Lessee perspective:
1) add opportunity gain
2) less direct cash outflow of lease rent
3) tax shield on lease rent as lease rent is allowable expenditure under tax laws. so tax is saved.
4) less tax shield on depreciation lost. this is opportunity cost of not taking loan and owning the asset.
5) less tax shield on interest of debt is opportunity cost of not choosing loan option.
6) less salvage value. again this is opportunity cost of not owning the asset.
Thus if NPV is positive lease option is chosen.

Lessor's perspective:
these figures are in terms of cost i.e. outflow is positive and inflows are negative
1) cost of machine is direct outflow on puchase
2)less salvage value is direct inflow of last year
3) less tax shield on depreciation is direct tax savings
4)add/less tax on STCG/STCL on salvage transaction, as the case may be.
the remaining figure is the minimum lease rental required for break even.