Bev's Beverages Is Negotiating a Lease on a New Piece

question 3

Multiple Choice

Bev's Beverages is negotiating a lease on a new piece of equipment that would cost $87,000 if purchased.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 $33,000.A maintenance contract on the equipment would cost $2,700 per year,payable at the beginning of each year.Alternatively,the firm could lease the equipment for 3 years for a lease payment of $20,200 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 8.3%.If there is a positive Net Advantage to Leasing,then the firm will lease the equipment.Otherwise,the firm will buy it.What is the NAL? (Note: MACRS rates for Years 1 to 4 are 0.33,0.45,0.15,and 0.07. ) Do not round your intermediate calculations.

• A) $10,365
• B) $10,884
• C) $8,811
• D) $7,774
• E) $9,847

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An educational approach designed to promote cooperation and reduce competition in classrooms by assigning students to small groups where each member contributes part of the solution to a problem.

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