Your Firm Is Considering Leasing a New Computer

question 21

Multiple Choice

Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What would the after-tax cash flow in year 9 be if the asset had a residual value of $500 (ignoring any possible risk differences) ?

• A) $955
• B) $1,455
• C) $605
• D) $1,305

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Definitions:

Rational

Based on clear thought and reason; characterized by the ability to make logical, practical, and effective decisions.

Emotional

Emotional pertains to feelings and their expression, affecting one's mood, attitude, and responses to various situations.

Processes

Sets of actions or steps followed in a consistent and structured manner to achieve a specific outcome or goal.

Market Share

The percentage of an industry's total sales that is earned by a particular company over a specified time period, indicating its dominance in the market.