Question

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 $4,800,000 and would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years. Assume that the tax rate is 24 percent. You can borrow at 6 percent before taxes. What would the lease payment have to be for both the lessor and the lessee to be indifferent about the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

After tax cost of capital = 6% (1-0.24) = 4.56%
Annual Depreciation (4800000/3)				1600000
Tax shield on dep (1600000*24%)				384000
Multiply: Annuity PVF at 4.56% for 3yrs				2.74586
Inflows of Tax shield on dep					1054410
Initial investment					-4800000
Net Present value of outflows					-3745590
Divide: Annuity PVF at 4.56% for 3yrs					2.74586
Annual lease payment					-1364086
Answer is Lease payment = 1364086