Calipers and More Is Weighing a Lease Versus a Purchase

question 74

Multiple Choice

Calipers and More is weighing a lease versus a purchase of some new machinery. The purchase price is $231,800. The equipment has a 4-year life after which time it is expected to have a resale
Value of $68,000. The equipment belongs in a 30 percent CCA class and the firm can borrow
Money at 9.5 percent. The equipment can be leased for $62,900 a year for 4 years. Calipers does
Not expect to owe any taxes for the next 4 years because of accumulated net operating losses.
What is the net advantage to leasing?

• A) -$36,209
• B) -$18,104
• C) $18,104
• D) $36,209
• E) $77,537

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Definitions:

Behavioral Implications

The impact that business strategies and practices have on the behavior and motivation of individuals within an organization.

ABC

Activity-Based Costing, a method of allocating overhead and indirect costs to specific products or projects based on the activities that consume resources.

Traditional Costing System

A costing method used in manufacturing, which assigns indirect costs to products based on a predetermined overhead rate.

Company Profits

The financial gains made by a company after all expenses, taxes, and costs have been subtracted from total revenue.