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 four 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 final answer to 2 decimal places. (e.g., 32.16))

NAL =

Explanation / Answer

Scanner Cost 5800000 Year 1 2 3 Total Lease Cost 2460000 2460000 2460000 PV of $ 1 @ 14% 0.87719 0.76947 0.67497 Present Value of Lease Cost 2157887.40 1892896.20 1660426.20 5711209.8 NAL = PV COST OF OWNING - PV COST OF LEASING Present Value Cost of Owning 5800000 Less: Present Value Cost of Leasing -5711209.80 Net Advantage to Leasing (NAL) 88790.20

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