You work for a nuclear research laboratory that is contemplating leasing a diagn
ID: 2794589 • Letter: Y
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 $5,100,000, and it would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years.
Assume that the tax rate is 35 percent. You can borrow at 13 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
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 $5,100,000, and it would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years.
Assume that the tax rate is 35 percent. You can borrow at 13 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Statement showing cost to be recovered
After tax Lease payment = Cost to be recovered/PVIFA(8.45%,3 years)
=3578993/2.5563
=14,00,060$
Before tax lease payment = 1400060/0.65 = 21,53,938$
*After tax cost of capital = 13%(1-0.35) = 8.45%
Year Depreciation Tax savings @ 35% PV @ 8.45% PV 1 1700000 595000 0.9221 548640 2 1700000 595000 0.8502 505892 3 1700000 595000 0.7840 466475 1521007 Cost of machine 5100000 Csot to be recovered 3578993Related Questions
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