Marschall's Is Trying to Decide Whether to Lease or Buy

question 12

Multiple Choice

Marschall's is trying to decide whether to lease or buy some new equipment. The equipment costs $62,000 and has a 4-year life. The equipment will be worthless after the 4 years and will have to be replaced. The company has a tax rate of 35 percent, a cost of borrowed funds of 9 percent. The equipment can be leased for $16,500 a year. What is the amount of the after-tax lease payment?

• A) $5,775
• B) $8,350
• C) $10,725
• D) $11,690
• E) $11,700

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Definitions:

Diversified Portfolio

An investment strategy that involves spreading investments across various asset classes to reduce risk.

Turnover Ratio

A measure of a fund or portfolio's holdings that have been replaced in a given year, indicating its trading activity.

Average Daily Assets

The average value of assets held by a fund over a specific period, usually calculated daily.

Stock

Shares of ownership in a corporation, giving shareholders a claim on the company's assets and earnings.