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Lakemark Corporation Has Decided to Acquire a Machine, Which Will

question 53

Multiple Choice

Lakemark Corporation has decided to acquire a machine, which will replace an existing piece ofequipment. The company has the choice between leasing the new machine or purchasing it. Theexisting machine is currently worth $8 000, while the new machine would cost $140 226. With the new machine installed, Lakemark would reduce its costs by $22 670 a year. The new machine would have a useful life of 8 years, qualify for a 10% Investment Tax Credit (ITC) and have a salvage value after 8 years of $10 000. This type of machine qualifies for a 20% CCA rate. For an8-year lease the annual payment is expected to be $23 500 with the first payment due upon signing the lease contract. Lakemark's cost of capital is 9%, tax rate is 30% and the cost of raising long-term debt is estimated at 10%. What is the Net Present Value of the lease? Round your final answer tothe nearest dollar.

Recognize the importance of audits in enhancing the reliability of financial statements for decision-making purposes.

Understand the components and significance of the statement of stockholders' equity.

Understand the relationship between financial statements and the flow of information between them.

Identify the consequences of financial statement issuance for a company.

Definitions:

Agency Contract

A legal agreement in which one party, the agent, agrees to act on behalf of another, the principal, typically in a business context.

Nullify

To make something legally void or ineffective, canceling its legal force.

Best Interest

A standard that guides decisions meant to favor the well-being or advantage of an individual or entity, often used in legal and financial contexts.

Agent's Duty

The responsibilities and obligations an agent owes to their principal, including acting with care, loyalty, and in good faith.