You Own a High-Tech Manufacturing Entity

question 23

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 amount would the lease payment have to be for both the lessor and the lessee to be
Indifferent to the lease?

• A) $306,965
• B) $318,035
• C) $414,141
• D) $441,772
• E) $465,098

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Definitions:

Calm Employees

Workers who maintain a relaxed and stress-free demeanor in the workplace, contributing to a tranquil work environment.

Enthusiastic

Characterized by or displaying intense and eager enjoyment, interest, or approval.

Mundane Activity

Routine or ordinary tasks that are part of daily life, often perceived as boring or dull.

Relationship Management

The strategies and techniques used to maintain and improve interactions with clients, customers, and stakeholders.