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 $2 million and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. You can lease it for $600,000 per year for 4 years. Assume your company does not contemplate paying taxes for the next several years. You can borrow at 6 percent before taxes. What is the net advantage to leasing from your company's standpoint?

Question

Quizplus · Accepted Answer

Cost of debt = 0.06Annual cost of leasing = $600,000NAL = $2,000,000 -$600,000(PVIFA_{6%, 4}) = -$79,063

You Work for a Nuclear Research Laboratory That Is Contemplating