You Own a High-Tech Manufacturing Entity

question 182

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 net advantage from leasing from the lessor's point of view?

• A) -$148,500
• B) -$62,548
• C) -$17,706
• D) $17,706
• E) $62,548

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Definitions:

Cardiovascular Disease

A class of diseases that involve the heart or blood vessels, such as coronary artery disease, hypertension, and stroke.

Not Exposed

indicates individuals or populations that have not come into contact with a disease-causing factor or agent.

Construct

An abstract concept or theoretical entity that is used in various fields of study to understand phenomena.

Articulate

The ability to express ideas or thoughts clearly and effectively in spoken or written form.