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 $5,800,000, and it would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years. You can lease it for $2,460,000 per year for three years.

Assume that your company does not anticipate paying taxes for the next several years. You can borrow at 14 percent before taxes. What is the NAL of the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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 $5,800,000, and it would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years. You can lease it for $2,460,000 per year for three years.

Explanation / Answer

Annual Lease Payment = $2,460,000
Cost of Scanner = $5,800,000
Cost of Debt = 14%

NAL = $5,800,000 - $2,460,000 * PVIFA(14%, 3)
NAL = $5,800,000 - $2,460,000 * (1 - (1/1.14)^3) / 0.14
NAL = $5,800,000 - $2,460,000 * 2.3216
NAL = $88,864

So, NAL of the lease is $88,864.00

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