You Own a High-Tech Manufacturing Entity

question 8

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 after-tax cost of debt for the lessee?

• A) 4.67%
• B) 5.28%
• C) 7.33%
• D) 8.00%
• E) 10.72%

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North Korea

A country in East Asia, officially known as the Democratic People's Republic of Korea, known for its authoritative government and isolation from most of the world.

South Korean

Pertaining to South Korea, its people, culture, or characteristics.

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A developmental stage typically referring to children aged 6-12 years, characterized by significant growth in cognitive, social, and physical abilities.

Social Intelligence

The capacity to understand and manage interpersonal relationships and navigate social environments.