Mosely Enterprises Is Trying to Decide Whether to Lease or Buy

question 92

Multiple Choice

Mosely Enterprises is trying to decide whether to lease or buy some new equipment. The equipment costs $57,000, has a 4-year life and will be worthless after the 4 years. The cost of
Borrowed funds is 9.5 percent and the tax rate is 35 percent. The equipment can be leased for
$15,000 a year. What is the amount of the annual depreciation tax shield if the firm uses straight-line
Depreciation?

• A) $4,225.00
• B) $4,528.90
• C) $4,987.50
• D) $5,123.60
• E) $5,250.00

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Definitions:

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the scale of operations and output increases.

Making a Profit

The financial gain obtained when the revenue generated from a business activity exceeds the expenses, taxes, and costs associated with maintaining the operation.

Breaking Even

The point at which total costs and total revenue are equal, meaning no net loss or gain has been made.

Taking a Loss

A situation where a business or individual sells an asset for less than its purchase price, resulting in a financial deficit.