Suppose the Distillation Unit Is Actually Worth $5000 (Salvage Value)

question 1

Multiple Choice

Suppose the distillation unit is actually worth $5000 (salvage value) at the end of five years. What is the net advantage to leasing?

• A) -$3,300
• B) -$235
• C) $4,046
• D) $7,519
• E) $13,793

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Definitions:

Factoring

A financial transaction in which a business sells its accounts receivable to a third party at a discount to gain immediate cash.

Uncollectible Accounts

Accounts receivable that a business has been unable to collect and deems as unlikely to be paid.

Aging of Receivables Method

An accounting technique used to estimate the amount of receivables that may not be collectible, based on the length of time they have been outstanding.

Percent of Sales Method

A financial forecasting model that estimates certain balance sheet and income statement accounts as a percentage of projected sales.