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Prime Care has approached the leasing department of First City Bank to arrange lease financing for a $1.2 million CAT scanner. The economic life of

Prime Care has approached the leasing department of First City Bank to arrange lease financing for a $1.2 million CAT scanner. The economic life of the scanner is estimated to be 10 years. The estimated salvage value at the end of 10 years is $0. First City plans to depreciate the scanner on a straight-line basis over 10 years. If First City charges a beginning-of-the-year lease payment of $255,395, what after-tax rate of return will the bank earn on the lease? Assume a marginal tax rate of 40%.

a.

16.8%

b.

40%

c.

13%

d.

4.7%

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