Jamestown Industries Is Contemplating the Acquisition of Some New Equipment

question 115

Multiple Choice

Jamestown Industries is contemplating the acquisition of some new equipment. The purchase price is $40,000. The equipment has a 4-year life after which time it will be worthless. The equipment
Belongs in a 35 percent CCA class. The equipment can be leased for $11,000 a year. The firm can
Borrow money at 7 percent and has a 35 percent tax rate. What is the incremental annual cash flow
For year 2 if the company decides to lease the equipment rather than purchase it?

• A) -$11,193
• B) -$7,904
• C) -$4,778
• D) -$2,916
• E) -$928

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