Question: A CNC machine is valued at $2,000,000 and is usually leased for 10 years. The manufacturer of this machine requires 15% after-tax required return on

A CNC machine is valued at $2,000,000 and is usually leased for 10 years. The manufacturer of this machine requires 15% after-tax required return on its lease contracts and depreciates the machine on a straight-line basis of $250,000 a year for 10 years to a book salvage value of zero. However, the manufacturer expects that the CNC machine will have a market salvage value of $200,000 at the end of the lease period. Moreover, a typical lease contract on this machine requires the manufacturer to cover annual maintenance cost of $450,000. The manufacturer's income tax rate is 40%.

Determine the annual before-tax lease payment for the CNC machine.

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