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

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Accounting

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 $4.3 million, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, it actually will be completely valueless in four years. You can lease it for $1.275 million per year for four years.

1. Lease or Buy [LO3] Assume that the tax rate is 21 percent. You can borrow at 8 percent before taxes. Should you lease or buy?

2. Leasing Cash Flows [LO3] What is the NAL of the lease from the lessors viewpoint? Assume a 21 percent tax rate.

3. Finding the Break-Even Payment [LO3] What would the lease payment have to be for both lessor and lessee to be indifferent about the lease?

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