Uminum, the World's Largest Producer of Feldspar, Is Considering Leasing

question 43

Multiple Choice

Uminum, the world's largest producer of feldspar, is considering leasing a sifter that costs $450,000. The 5-year lease requires 5 beginning-of-the-year payments. The leasing company is depreciating the sifter on a straight-line basis of $90,000 per year to a salvage value of zero but assumes the actual salvage value at the end of 5 years is expected to be $25,000. If the leasing company desires to earn an 11% after-tax rate of return of the lease, what annual lease payment will they require? Assume a marginal tax rate of 40%.

• A) $125,145
• B) $75,087
• C) $148,517
• D) $122,736

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Definitions:

Monopoly

An industry controlled by a monopolist.

Consumers' Dislike

The negative reactions or attitudes consumers have towards a product or service.

Perception

Perception is the process by which individuals organize and interpret their sensory impressions to give meaning to their environment or situations.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, with some degree of market power.