Your Firm Is Considering Leasing a New Robotic Milling Control

question 48

Multiple Choice

Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%,and the corporate tax rate is 34%. What is the appropriate discount rate for valuing the lease?

• A) 2.72%
• B) 5.28%
• C) 8.00%
• D) 12.12%
• E) None of these.