Question

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $5,700,000, and it would be depreciated straight-line to zero over five years. Because of radiation contamination, it actually will be completely valueless in five years.

You can borrow at 8 percent before taxes. Your company does not anticipate paying taxes for the next several years, but the leasing company has a tax rate of 22 percent. Over what range of lease payments will the lease be profitable for both parties?

Answer 1