You work for a nuclear research laboratory that is contemplating leasing a diagn

Question

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 $7,610.000. and it would be depreciated straight-line to zero over five years. Because of radiation contamination, it will actually be completely valueless in five years. Assume that the tax rate is 35 percent. You can borrow at 12 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Break-even lease payment

Explanation / Answer

So, at the lease rental rate of 1581000 , there will be no difference between buy and lease.

Particular/Year 0 1 2 3 4 5 Buy the scannet(A) 7610000 Depriciation=7610000/5 1522000 1522000 1522000 1522000 1522000 Tax benefit@35%(B) 532700 532700 532700 532700 532700 Net Cash Flow(B-A) -7610000 532700 532700 532700 532700 532700 Discounted@12% -7610000 475625 424665.2 379165.3 338540.5 302268.3 NPV -5689736 Let the Lease Amount be A1 =A1/(1.12)+A1/(1.12^2)+A1/(1.12^3)+A1/(1.12^4)+A1/(1.12^5)=5689736 Solving we get , Annual Lease Amount=1581000

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