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.Assume the tax rate is 33 percent.You can borrow at 6 percent before taxes.How much would the lease payment have to be in order for both the lessor and the lessee to be indifferent about the lease?
A)$500,000
B)$521,909
C)$552,200
D)$563,333
E)$576,477

Question

Quizplus · Accepted Answer

Aftertax debt cost = 0.06(1 - 0.33) = 0.0402NAL = 0 = $2,000,000 - OCF (PVIFA_{4.02%, 4}); OCF = $551,239.82Depreciation tax shield = ($2,000,000/4) (0.33) = $165,000Aftertax lease payment = $551,239.82 - $165,000 = $386,239.82Breakeven lease payment = $386,239.82/(1 - 0.33) = $576,477

You Work for a Nuclear Research Laboratory That Is Contemplating