Carmichael Cleaners Needs a New Steam Finishing Machine That Costs

question 13

Multiple Choice

Carmichael Cleaners needs a new steam finishing machine that costs $100,000.The company is evaluating whether it should lease or purchase the machine.The equipment falls into the MACRS 3-year class,and it would be used for 3 years and then sold,because the firm plans to move to a new facility at that time.The estimated value of the equipment after 3 years is $30,000.A maintenance contract on the equipment would cost $3,000 per year,payable at the beginning of each year.Alternatively,the firm could lease the equipment for 3 years for a lease payment of $29,000 per year,payable at the beginning of each year.The lease would include maintenance.The firm is in the 20% tax bracket,and it could obtain a 3-year simple interest loan,interest payable at the end of the year,to purchase the equipment at a before-tax cost of 10%.If there is a positive Net Advantage to Leasing the firm will lease the equipment.Otherwise,it will buy it.What is the NAL? (Note: Assume MACRS rates for Years 1 to 4 are 0.3333,0.4445,0.1481,and 0.0741. )

• A) $5,734
• B) $6,023
• C) $6,324
• D) $6,640
• E) $6,972

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Definitions:

Gardner's Multiple Intelligences

A theory that proposes intelligence can be divided into multiple specific ('intelligence') areas, including linguistic, logical-mathematical, spatial, and others.

Spatial

Relating to, occupying, or having the character of space, particularly in how objects are located and organized within it.

Three-Dimensionally

Pertaining to or involving the three dimensions of length, width, and depth to represent or perceive forms with a sense of solidness and spatial awareness.

Babbling

Early stage of language development, where infants produce sounds and syllables that do not form actual words but are precursors to speech.