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

question 8

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 net advantage to leasing for the lessor?

• A) -$18,568
• B) -$17,640
• C) -$17,488
• D) -$16,813
• E) $16,619

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Definitions:

Certify

To officially declare or verify that something is true, accurate, or meets a specific standard.

UCC

Stands for the Uniform Commercial Code, which is a comprehensive set of laws governing commercial transactions in the United States, including sales, leases, negotiable instruments, and secured transactions.

Sufficient Funds

A term indicating that an account has enough available money to cover transactions such as withdrawals, checks, or payments.

Money Orders

Payment orders for a specified amount of money that are a secure alternative to cash or personal checks.