If Your Firm Purchases a Machine Costing $2 Million, It

question 33

Multiple Choice

If your firm purchases a machine costing $2 million, it would depreciate that machine straight-line to zero over four years, after which time the machine would be worthless. Your firm has a tax rate of 23 percent and borrows funds at 6 percent before taxes. Your firm is also considering leasing this machine. How much would the lease payment have to be in order for both the lessor and your firm to be indifferent about leasing?

• A) $601,316
• B) $521,909
• C) $552,200
• D) $563,333
• E) $576,693

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Definitions:

Histograms

Graphical representations of the distribution of numerical data, showing the frequency of data within certain ranges.

Empirical Rule

A statistical norm that asserts for a normally distributed set of data, almost all of the data points are encompassed within three standard deviations from the mean value.

Sample Variance

The measure of dispersion of sample data points around the sample mean, providing an estimation of the population variance.

Sample Standard Deviation

A measure of the dispersion or variability of a set of sample data points around its mean.