Question
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
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 $5,600,000 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 $1,370,000 per year for five years. Assume the tax rate is 22 percent. The borrowing rate is 8 percent before taxes. Your company does not expect to pay taxes for the next several years, but the leasing company will pay taxes. Over what range of lease payments will the lease be profitable for both parties?
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