Use the Following Information to Answer the Question(s)below

question 41

Multiple Choice

Use the following information to answer the question(s) below.
Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carryforwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease.
-The lease rate for which the lessor will break even is closest to:

• A)$1,110,000.
• B)$1,130,000.
• C)$1,150,000.
• D)$1,160,000.

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Definitions:

Frontal Lobes

The front part of the brain's cerebral hemispheres, involved in decision making, problem solving, control of purposeful behaviors, consciousness, and emotions.

Complexity

The state or quality of being intricate or complicated, often referring to systems with multiple interrelated components.

Reticular Formation

A network of nerves in the brainstem that plays a crucial role in controlling arousal and consciousness.

Staying Awake

The state of remaining conscious and alert, refraining from sleep.