Problem 21-2 Leasing Cash Flows

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $5.2 million and would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $1.51 million per year for four years.

Assume a 21 percent tax rate. You can borrow at 8 percent before taxes. What are the cash flows from the lease from the lessors viewpoint? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)