RonCo Company Is Considering a Recycling Project

question 3

Multiple Choice

RonCo Company is considering a recycling project.The project will result in a significant decrease in their garbage disposal costs.The acquisition cost of the recycling machine is $100,000.The present value of the depreciation tax shield (CCA) is $35,000 and the machine is expected to have a zero salvage value.The firm can lease the machine instead of buying it - the present value of the before-tax lease payments is $60,000 and the present value of the tax savings from the lease payments is $20,000.Should the firm lease the recycling machine and why or why not?

• A)Yes, the net NPV of leasing is $60,000.
• B)Yes, the net NPV of leasing is $25,000.
• C)No, the net NPV of leasing is −$40,000.
• D)No, the net NPV of leasing is −$175,000.

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Definitions:

Redistribution of Income

The transfer of income from certain individuals or groups to others through mechanisms like taxes and social security payments, aiming to reduce economic inequality.

Utilitarians

Individuals or philosophers who believe that the best action is the one that maximizes utility, often defined as maximizing happiness and reducing suffering.

Sum of Utilities

The aggregate measure of satisfaction or benefit that individuals get from consuming goods and services.

Liberalism

The political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a “veil of ignorance”.