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 $2,000,000, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $600,000 per year for four years.

Rework Problem 1 assuming that the scanner will be depreciated as three-year property under MACRS.

Data from Problem 1

Assume that the tax rate is 35 percent. You can borrow at 8 percent before taxes. Should you lease or buy?