Black Hammer Tools Is Contemplating the Acquisition of Some New

question 209

Multiple Choice

Black Hammer Tools is contemplating the acquisition of some new equipment at a cost of $94,000. Assume that the CCA 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent of the value over years 1 to 4, respectively. After that time, the equipment will be worthless. The equipment can be leased for $25,000 a year for 4 years. The firm can borrow money at 8.5 percent and has a 35 percent tax rate. What is the net advantage to leasing?

• A) $6,529
• B) $6,547
• C) $6,868
• D) $7,109
• E) $7,438

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Definitions:

Days' Sales Uncollected

A financial metric that measures how long it takes, on average, for a company to collect cash from its credit sales.

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated by comparing the profit and the revenue.

Total Asset Turnover

A financial measure that calculates the ability of a company to turn its assets into sales revenue.

Return On Total Assets

A financial ratio that measures a company's ability to generate profit from its assets.