Merkon Inc

question 27

Multiple Choice

Merkon Inc. must choose between purchasing a new asset for $86,000 or leasing the asset for four years for $27,500 annual rent. The purchased asset would be 3-year recovery property that Merkon could use for four years, after which the asset would have no salvage value. Assuming a 21% tax rate, an 8% discount rate, and no Section 179 deduction or bonus depreciation, which of the following statements is true? Use Appendix A, Table 7-2. (Round discount factor(s) to 3 decimal places.)

• A) Merkon's after-tax cost of the purchase is $8,517 less than the after-tax cost of the lease.
• B) Merkon's after-tax cost of the lease is $1,374 less than the after-tax cost of the purchase.
• C) Merkon's after-tax cost of the purchase is $8,517 more than the after-tax cost of the lease.
• D) None of these choices are correct.

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Definitions:

Compensation

The total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Strikebreaking

Strikebreaking refers to actions taken to disrupt or undermine the effectiveness of a strike by workers, often involving the hiring of replacement workers.

Last-resort Measure

An action taken only after all other options or solutions have been exhausted or deemed ineffective.