Determine the after-tax cost of debt

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Reference no: EM131604065

ou 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 $6.3 million and it qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You can lease it for $1.875 million per year for four years. Assume that assets pool remains open and payments are made at the end of the year.

Assume the tax rate is 37 percent. You can borrow at 8 percent pre-tax. Should you lease or buy?

Determine the after-tax cost of debt, use the formula for PV of CCATS and then calculate NAL.

Reference no: EM131604065

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