Question

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 $6.4 million and it qualifies for a 30% CCA rate. Because of radiation contamination, it is valueless in four years. You can lease it for $1.960 million per year for four years. You can borrow at 10.0% pre-tax. Assume that the assets pool remains open and payments are made at the end of the year. Assume that your company does not contemplate paying taxes for the next several years. What are the cash flows from leasing? (Enter the answer in dollars and not in millions of dollars. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NALD

Answer 1

A) Cash from Leasing

Particulars	Year 1	Year 2	Year 3	Year 4	Total
	1	2	3	4
lease payment receipt	1960000	1960000	1960000	1960000	7840000
Payment
Interest on Loan	640000	508000	362800	203080	1713880
payment of principal	1320000	1452000	1597200	1756920	6126120
Total Payment	1960000	1960000	1960000	1960000	7840000
Total Loan	6400000
Total Receipt	7840000
Total Interest paid	1713880
Total Loan Principal payment	6126120
shortfall in payment of Loan	273880

schedule of loan payment

Instalment number	Principal at beginning	half year interest rate	Interest	Payment	Balance at the end of half year	Payment of Principal
A	B	C	D= (B*C)	E	F = B+D-E	G =E-D
1	6400000.00	10.00%	640000.00	1960000.00	5080000.00	1320000.00
2	5080000.00	10.00%	508000.00	1960000.00	3628000.00	1452000.00
3	3628000.00	10.00%	362800.00	1960000.00	2030800.00	1597200.00
4	2030800.00	10.00%	203080.00	1960000.00	273,880.00	1756920.00

There is shortfall of $ 273,880 in payment so at the end of 4 year NAL= $ -273,880.00