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

---

Definitions:

Bipolar Disorder

A mental health condition characterized by extreme mood swings, including episodes of depression and mania.

Serotonin

A neurotransmitter that contributes to feelings of well-being and happiness, also involved in regulating mood, appetite, and sleep.

Dopamine

A neurotransmitter in the brain that plays a key role in reward, motivation, memory, attention, and even regulating body movements.

Acetylcholine

A neurotransmitter in both the peripheral and central nervous systems that plays crucial roles in the stimulation of muscle cells and in various aspects of cognitive function, including memory.