Medarex Is Considering the Lease of an Electronic Welder Costing

question 46

Multiple Choice

Medarex is considering the lease of an electronic welder costing $210,000 from Key Leasing.The period of the lease will be 6 years.The welder will be depreciated under MACRS rules for a 5-year class asset.Medarex's marginal tax rate is 40%.Annual beginning of the year lease payments will be $50,000.Estimated salvage value is zero.If Medarex's after tax cost of borrowing is 15%, compute the net advantage to leasing.(Problem requires MACRS tables.)

• A)$8,527
• B)-$17,592
• C)-$67,174
• D)$21,427

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Definitions:

Long-Run Exposure

The potential impact on a company's financial health over an extended period due to risks associated with changes in exchange rates, interest rates, or market conditions.

Plumbing Products

Items and systems involved in the distribution and management of water in buildings, including pipes, fixtures, and fittings.

Depreciation

A method of allocating the cost of a tangible asset over its useful life.

Short Run Exchange Rate Risk

The potential for financial loss resulting from fluctuations in the exchange rate between currencies in the near term.