1. You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $5,500,000 and would be depreciated straight-line to zero over five years. Because of radiation contamination, it will actually be completely valueless in five years. You can lease it for $1,320,000 per year for five years. Assume that the tax rate is 21 percent. You can borrow at 7 percent before taxes.

Calculate the NAL.

2.You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $5,300,000 and would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. Assume that the tax rate is 24 percent. You can borrow at 8 percent before taxes.

What would the lease payment have to be for both the lessor and the lessee to be indifferent about the lease?

3.

Witten Entertainment is considering buying a machine that costs $548,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of $143,000. The company can issue bonds at an interest rate of 8 percent. The corporate tax rate is 23 percent.

What is the NAL of the lease?