Sandia Inc

question 24

Multiple Choice

Sandia Inc. wants to acquire a $360,000 computer-controlled printing press. If owned, the press would be depreciated on a straight-line basis over 10 years to a book salvage value of $0. The actual cash salvage value is expected to be $25,000 at the end of 10 years. If purchased, Sandia will incur annual maintenance expenses of $3,000. These expenses would not be incurred if the press is leased. If the press is purchased, Sandia could borrow the needed funds at an annual pre-tax interest rate of 10%. The lease rate would be $48,000 per year, payable at the beginning of each year. If Sandia has an after-tax cost of capital of 12% and a marginal tax rate of 40%, what is the net advantage to leasing?

• A) $60,713
• B) $65,543
• C) $57,173
• D) $37,737

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Definitions:

Economies of Scope

Cost advantages that enterprises obtain due to efficient utilization of resources across multiple products or services.

Myelencephalon

Most caudal portion of the embryonic brain; also called medulla oblongata.

Mesencephalon

Midbrain in both the embryo and adult; consists of the cerebral peduncle and the corpora quadrigemini.

Diencephalon

Second portion of the embryonic brain; in the inferior core of the adult cerebrum.