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 $6,500,000, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $2,030,000 per year for four years. Assume that your company does not anticipate paying taxes for the next several years. You can borrow at 10 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

Net Presetn Value of Leasing=-2030000/1.1-2030000/1.1^2-2030000/1.1^3-2030000/1.1^4=-6434827

Net Present Value of Buying=-6500000

hence, NAL=-6434827+6500000=65173

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