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Question: You work for a nuclear research laboratory

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 $4.3 million, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, it actually will be completely valueless in four years. You can lease it for $1.275 million per year for four years.
Rework Problem 1, assuming that the scanner will be depreciated as three-year property under MACRS (see Chapter 10 for the depreciation allowances).

Problem 1:
Assume that the tax rate is 21 percent. You can borrow at 8 percent before taxes. Should you lease or buy?


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