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 $6,300,000, and it 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 $1,875,000 per year for four years.

1. Lease or Buy [LO3] Assume that the tax rate is 35 percent. You can borrow at 8 percent before taxes. Should you lease or buy?

2. Leasing Cash Flows [LO3] What are the cash f ows from the lease from the lessor