You Own a High-Tech Manufacturing Entity

question 75

Multiple Choice

You own a high-tech manufacturing entity. You would like to expand your operations but to do so you need to either lease or buy a $1.2 million piece of equipment for the next three years. The lease
Payments would be $475,000 a year for the three years. If the equipment is purchased, it will be
Depreciated straight-line to zero over the three-year period. The equipment will have no residual
Value at the end of the three years. Should the equipment be leased, the lessor and the lessee will
Both have marginal tax rates of 34%. The loan rate for your firm for this purpose is 8% pre-tax.
What is the amount of the annual depreciation tax shield?

• A) $136,000
• B) $166,250
• C) $158,333
• D) $272,000
• E) $400,000

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Definitions:

Taste

is one of the five senses, involving the perception of flavor from substances on the tongue, mediated by taste buds.

General Sense

Refers to the basic or overall understanding and perception of a topic or issue without delving into specific details.

Touch

A sensation perceived through the skin's receptors that involves the detection of pressure, temperature, and pain.

Cutaneous Receptors

Sensory receptors found in the dermis or epidermis of the skin that respond to various stimuli like touch, temperature, and pain.