Task:
Our company is considering leasing a diagnostic scanner. The scanner costs $2.5 million and qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. We can lease it for $800,000 per year for 4 years.
Question 1. Assume the tax rate is 37%. You can borrow at 7.5% pretax. Should you buy or lease?
Question 2. What are the cash flows from the lease from the lessor's point of view? (assume 37% tax bracket)
Question 3. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease? (Break-even lease)