A Lessor Will Charge $13,800 a Year for Four Years

question 39

Multiple Choice

A lessor will charge $13,800 a year for four years as lease payments on $47,800 of equipment. The equipment has a life of four years after which it should resell for $8,400. Your firm uses straight-line depreciation, borrows at 10 percent, and has a tax rate of 25 percent. What is the amount of the Year 4 cash flows when computing the NAL?

• A) −$16,650
• B) −$19,638
• C) −$21,738
• D) −$15,748
• E) −$17,038

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Definitions:

Cost Flow Assumptions

Methods used to assign costs to inventory and goods sold, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

Unit Cost

The cost incurred to produce, acquire or handle one unit of a product or service.

Appropriate Code

A specific numerical or alphanumeric identifier used to classify and organize data, transactions, or items according to established criteria.

Merchandise Inventory

The value of the products that a company has in stock and intends to sell.