Your Firm Is Considering Leasing a New Robotic Milling Control

question 41

Multiple Choice

Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the NPV of the lease?

• A) $111,690
• B) $295,040
• C) $305,388
• D) $309,690

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Definitions:

New Product

An item or service that has been recently developed or introduced to the market.

Required Return

The minimum expected return an investor demands for an investment, considering its risk.

Net Operating Income

A measure of a company's profitability from its regular, core business operations, calculated as revenue minus operating expenses, excluding taxes and interest.

Current Price

The present market value or selling price of a good, service, or asset.