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Homework answers / question archive / 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)
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 $8,410,000 and it 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 $2,451,000 per year for five years. Assume a 35 percent tax bracket. You can borrow at 15 percent before taxes. What is the NAL of the lease from the lessor's viewpoint? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Depreciation tax shield = ($8,410,000 / 5) * 35% = $588,700
After tax lease payment = $2,451,000 * (1 - 35%) = $1,593,150
Total cash flow = Depreciation tax shield + After tax lease payment
= $588,700 + $1,593,150
= $2,181,850
After tax cost of debt = 15% * (1 - 35%) = 9.75%
Present value of cash flow can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(9.75%,5,-2181850,0)
= $8,324,023.78
NAL = Cost of equipment - Present value of cash flow
= $8,410,000 - $8,324,023.78
= $85,976.22
NAL of the lease from the lessor's viewpoint = -$85,976.22
