Mosely Enterprises Is Trying to Decide Whether to Lease or Buy

question 260

Multiple Choice

Mosely Enterprises is trying to decide whether to lease or buy some new equipment. The equipment costs $57,000, has a 4-year life and will be worthless after the 4 years. The cost of borrowed funds is 9.5 percent and the tax rate is 35 percent. The equipment can be leased for $15,000 a year. What is the amount of the annual depreciation tax shield if the firm uses straight-line depreciation?

• A) $4,225.00
• B) $4,528.90
• C) $4,987.50
• D) $5,123.60
• E) $5,250.00

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Definitions:

Performance Feedback

The process of providing individuals with information regarding their performance level, often with suggestions for improvement.

Optimal Frequency

The most efficient or effective rate at which a particular operation, process, or activity is carried out for desired results.

Equity Theory

A theory in social psychology that posits individuals assess their own input-to-outcome ratios in comparison to others to determine fairness in work settings or relationships.

Employee Motivation

Describes the factors or conditions that inspire employees to perform their jobs with enthusiasm, energy, and commitment.