Use the following information to work Problems 1-6. 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.

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

Use # 1 to answer # 2

Leasing Cash flows : 2. What are the cash flows from the lease from the lessor's viewpoint? Assume a 21 percent tax rate.