Medarex Is Considering the Lease of an Electronic Welder Costing

question 37

Multiple Choice

Medarex is considering the lease of an electronic welder costing $210,000 from Key Leasing. The period of the lease will be 6 years. The welder will be depreciated under MACRS rules for a 5-year class asset. Medarex's marginal tax rate is 40%. Annual beginning-of-the-year lease payments will be $50,000. Estimated salvage value is zero. Assuming Medarex's after-tax cost of borrowing is 15%, compute the net advantage to leasing. (Problem requires MACRS tables.)

• A) $8,527
• B) -$17,592
• C) -$67,174
• D) $21,427

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Definitions:

Share Repurchases

It refers to the process where a company buys back its own shares from the marketplace, reducing the amount of outstanding shares.

Cash Dividend

A direct payment of profits from a company to its shareholders, typically in the form of cash.