Finance Some Manufacturing Tools It Needs for the Next 3

question 5

Multiple Choice

finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement The tools will be obsolete and worthless after 3 years The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year The firm's tax rate is 40% Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases What is the net advantage to leasing (NAL) , in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands.)

• A) $96
• B) $106
• C) $112
• D) $117
• E) $123

---

Definitions:

Coliform Bacteria

A group of bacteria predominantly found in the intestines of warm-blooded organisms and in their waste, used as an indicator of sanitary quality of water and food.

Indicator

A variable or criterion that serves to measure or demonstrate the state or level of something, often used in environmental, economic, and social contexts.

Organic Wastes

Biological materials originating from living organisms that are capable of being decomposed by other living organisms.