Your fiRm Is Considering Leasing a New Computer

question 9

Multiple Choice

Your firm is considering leasing a new computer.The lease lasts for 9 years.The lease calls for 10 payments of £1,000 per year with the first payment occurring immediately.The computer would cost
£7,650 to buy and would be straight-line depreciated to a zero salvage over 9 years.The actual
Salvage value is negligible because of technological obsolescence.The firm can borrow at a rate of
8%)
The corporate tax rate is 30%.This lease would be classified as a(n) :

• A)operating lease because the asset will be obsolete.
• B)operating lease because there is not amortization.
• C)leveraged lease because it is being financed.
• D)capital lease because the lease life is greater than 75% of the economic life.
• E)sale and leaseback because the company gets full use of the asset.

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Definitions:

Labor

The utilization of human physical and mental efforts towards the creation of services and products.

Land

The natural resource encompassing the earth's surface, not including water or buildings.

Agriculture Sales

The trading of products and services related to farming and other agricultural activities.

Industrial Capitalist

An individual or entity that invests in industries for profit through the ownership of physical goods and capital goods used in production.