Merkon Inc

question 90

Multiple Choice

Merkon Inc.must choose between purchasing a new asset for $86,000 or leasing the asset for four years for $27,500 annual rent.The purchased asset would be 3-year recovery property that Merkon could use for four years,after which the asset would have no salvage value.Assuming a 21% tax rate,an 8% discount rate,and no Section 179 deduction or bonus depreciation,which of the following statements is true? Use Appendix A,Table 7-2.(Round discount factor(s) to 3 decimal places.)

• A)Merkon's after-tax cost of the purchase is $8,517 less than the after-tax cost of the lease.
• B)Merkon's after-tax cost of the lease is $1,374 less than the after-tax cost of the purchase.
• C)Merkon's after-tax cost of the purchase is $8,517 more than the after-tax cost of the lease.
• D)None of the choices are correct.

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Definitions:

Carbohydrate

Organic compounds, including sugars, starches, and celluloses, which are a major source of energy for the body.

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A substance that undergoes a chemical reaction, consisting of atoms or molecules.

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Pertaining to the design, operation, and use of machines or tools.

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