### What is the net advantage to leasing

##### Reference no: EM132281423

You work for a nuclear research laboratory that is considering leasing a diagnostic scanner. The scanner costs \$7.65 million, qualifies for a 20 percent CCA rate and can be sold for \$625,000 in 4 years. The scanner can also be leased for \$1.875 million per year for 4 years. The lease payments will be made at the beginning of the year. Assume the tax rate is 35 percent and that the asset pool remains open after 4 years. The before tax cost of debt is 8.14%. The scanner will induce annual savings of \$1,250,000 over the next 4 years.

a. What is the net advantage to leasing? Should the managers of the nuclear research laboratory lease or buy the scanner?

b. What is the after-tax break-even lease payment?

c. Assume the nuclear research laboratory becomes exempt from taxes. What will be the new net advantage to leasing?

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