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

question 170

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 the amount of annual depreciation Maxine's can claim in the first year if the firm purchases the equipment?

• A) $60,000
• B) $90,000
• C) $120,000
• D) $160,000
• E) $180,000

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Definitions:

Cash Collected

The total amount of cash received by a company during a specific period, often from the sale of goods or services.

Accounts Receivable

Receivables from customers for deliveries of goods or services that remain unpaid.

Bad Debt Expense

The cost associated with accounts receivable that a company determines will not be collected, recognizing it as an expense.

FOB Destination

A shipping term indicating that the seller retains ownership and responsibility for goods until they are delivered to the buyer’s location, at which point the buyer takes ownership.