You work for a medical research laboratory that is contemplating leasing a diagnostic scanner. The scanner costs €4,000,000, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, the scanner will be worthless in four years. You can lease the scanner for €900,000 per year for four years. You can borrow at 5 percent before taxes. Assume that the tax rate is 20 percent.
Instructions: a. Complete a lease-versus-buy analysis. Calculate the NPV of leasing. Should you lease or buy? (15 points) 0 1 2 3 4
Cost of asset
After-tax lease payment
Lost depreciation tax shield
Cash flow of lease
b. Explain the impact of leasing on the balance sheet. (5 points) CASE 2 (35 points)
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