Maxine's Is Considering Either Purchasing or Leasing a $600,000 Piece

question 41

Multiple Choice

Maxine's is considering either purchasing or leasing a $600,000 piece of specialized equipment. The equipment has a life of 5 years, belongs in a 30% CCA class, and will have no residual value. The cost of debt is 12% for this purchase. A lease on the equipment for 5 years is priced at $150,000 a year. Maxine's corporate tax rate is 34%. The lessor has a tax rate of 35%.

What is Maxine's break-even lease payment amount?

• A) $109,057
• B) $133,677
• C) $155,980
• D) $170,802
• E) $182,968

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Definitions:

Categorical Imperative

A central concept in the ethical philosophy of Immanuel Kant, stating that one should act only according to that maxim whereby you can, at the same time, will that it should become a universal law.

Motives of Vanity

The driving factors behind actions that are primarily focused on excessive pride in one's appearance or achievements.

Sake of Duty

Acting based on a sense of moral obligation rather than personal desire, interest, or consequence.

Maxim

A concise statement expressing a general truth or rule of conduct.