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:

Raw Materials

Basic materials that are used in the manufacturing process to produce goods and products.

January Production

January production refers to the measure of output or the total amount of goods produced by a company in the month of January.

Inventory Management

The process of ordering, storing, tracking, and controlling inventory to ensure the right quantity of stock is available when needed.

Sales Forecast

An estimate of sales for a future period, often used for planning and managing business operations.