Question

# You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is...

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs \$5,200,000 and would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for \$1,460,000 per year for four years. Assume that the tax rate is 23 percent. You can borrow at 7 percent before taxes. Calculate the NAL. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Should you lease or buy?

 After tax cost of capital = 7% (1-0.23) = 5.39% Annual Depreciation (5200000/4) 1300000 Tax shield on dep (1300000*23%) 299000 Multiply: Annuity PVF at 5.39% for 4yrs 3.51406 Inflows of Tax shield on dep 1050704 Initial investment -5200000 Net Present value of outflows -4149296 Annual lease payment -1460000 Less: Tax benefit @23% 335800 Net Annual lease payment -1124200 Multiply: Annuity PVF at 5.39% for 4yrs 3.51406 Present value f lease payment -3950506 NAL 198790

#### Earn Coins

Coins can be redeemed for fabulous gifts.