Your Firm Needs to Either Buy or Lease $230,000 Worth

question 117

Multiple Choice

Your firm needs to either buy or lease $230,000 worth of vehicles. These vehicles have a life of 4 years after which time they are worthless. The vehicles belong in CCA class 10 (a 30% class) and can be leased at a cost of $68,000 a year for the 4 years. The corporate tax rate is 34% and the cost of debt is 10%.

The lessor in this case has a tax rate of 35%. What is the net advantage of leasing to the lessor?

• A) -$74,126
• B) -$4,592
• C) $4,592
• D) $21,018
• E) $74,126

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Definitions:

Tying Contract

A requirement imposed by a seller that a buyer purchase another (or other) of its products as a condition for buying a desired product; a practice forbidden by the Clayton Act.

Price-fixing

An illegal agreement among competitors to maintain prices at a certain level, preventing the forces of competition from dictating market prices.

Sherman Act

The federal antitrust law of 1890 that makes monopoly and conspiracies to restrain trade criminal offenses.

Federal Energy Regulatory Commission

The Federal Energy Regulatory Commission (FERC) is a U.S. government agency that regulates the interstate transmission of electricity, natural gas, and oil.