Unilog Is Considering Leasing a Computer from UniNet Under a 6-Year

question 19

Multiple Choice

Unilog is considering leasing a computer from UniNet under a 6-year lease.The computer costs $200,000 and will be depreciated as a 5-year MACRS asset.The expected salvage value of the computer after 6 years is $20,000.UniNet's marginal tax rate is 35 percent and its average tax rate is 30%.UniNet requires a 13 percent after-tax rate of return on leases of this type.What annual, pretax, beginning-of-the-year lease payment must Unilog make to UniNet? (Problem requires MACRS depreciation tables.)

• A)$48,786
• B)$31,711
• C)$50,500
• D)$16,848

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Definitions:

Risk/Return

The principle that potential return rises with an increase in risk. Investors must balance the desire for low risk with the need for higher returns.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for another good while maintaining the same level of satisfaction.

Treasury Securities

Government debt instruments issued by the Treasury Department of a country to fund its national debt and finance government spending.

Stock Market

A marketplace where stocks (shares of ownership in companies) are bought and sold, typically through exchanges.