You Are the CFO of a Company

question 55

Multiple Choice

You are the CFO of a company.You are considering leasing photocopiers from the manufacturer instead of purchasing them for $200,000.You can borrow at after-tax interest of 9% and the corporate tax rate is 35%.The lease payment will be $50,000 for five years.At the end of the five years, the photocopiers will be worthless.Photocopiers are depreciated at 20% CCA rate.What is the NPV of the lease?

• A)$27,304
• B)$39,582
• C)$52,395
• D)$73,586

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Definitions:

Treasury Stock

Treasury stock refers to previously issued shares that have been repurchased by the issuing company, reducing the amount of outstanding stock on the open market.

Financing Activities

Transactions involving external sources of funding, including debts, dividends, and sale or repurchase of shares.

Income Tax Expense

represents the cost associated with taxes on a company's income, taking into account both current and deferred tax obligations.

Direct Method

A cash flow statement presentation that lists specific operating cash receipts and payments, straightforwardly showing sources and uses of cash.