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 $2.2 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?
A)$82,711
B)$120,937
C)$121,409
D)$122,818
E)$128,315

Question

Quizplus · Accepted Answer

Cost of debt = 0.06Annual cost of leasing = $600,000NAL = $2,200,000 -$600,000(PVIFA_{6%, 4}) = $120,937

You Work for a Nuclear Research Laboratory That Is Contemplating