If a fiRm Does Not Expect to Owe Taxes for a Few

question 116

Multiple Choice

If a firm does not expect to owe taxes for a few years and needs some equipment, the firm should:

• A) Lease the equipment and retain the tax benefits.
• B) Lease the equipment with the lessor retaining the tax ownership of the asset.
• C) Borrow the money to buy the asset and then depreciate it using CCA depreciation.
• D) Buy the equipment with cash and depreciate it using CCA.
• E) Buy the equipment and depreciate it straight-line over the life of the asset.

---

Definitions:

Cost of Equity

Cost of equity is the return that investors expect from an investment in a company, considering the risk of investing in its equity.

Stock Split

An action taken by a company to divide its existing shares into multiple shares to boost the liquidity of the shares, though the market value of the company does not change.

Market Price

The rate at which an asset or service is currently trading in the market.

Shares Outstanding

The total number of shares of a corporation's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.