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 $5,000,000 and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. You can lease it for $1,250,000 per year for 4 years. Assume the tax rate is 34 percent. You can borrow at 9 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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 $5,000,000 and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. You can lease it for $1,250,000 per year for 4 years. Assume the tax rate is 34 percent. You can borrow at 9 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease? 

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