Your fiRm Is Considering Leasing a New Robotic Milling Control

question 36

Multiple Choice

Your firm is considering leasing a new robotic milling control system.The lease lasts for 5 years.The lease calls for 6 payments of £300,000 per year with the first payment occurring at lease inception.
The black box would cost £1,050,000 to buy and would be straight-line depreciated to a zero salvage.
The actual salvage value is zero.The firm can borrow at 8%, and the corporate tax rate is 34%.
What is the minimum lease payment that the lessor would be willing to accept?

• A)£161,000
• B)£176,995
• C)£217,645
• D)£237,083
• E)None of the above.

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Definitions:

Standard Cost

A predetermined cost of manufacturing a single unit or a number of product units during a specific period under current or anticipated operating conditions.

Overhead Applied

An accounting method used to allocate estimated overhead costs to specific products or job orders based on a predetermined rate or method.

Machine Hours

A measure of the amount of time a machine is operating during a specific period.

Under/Overapplied Overhead

This term identifies the discrepancy between the estimated overhead costs allocated to products or services and the actual overhead costs incurred.