Baxter Contractors Is Evaluating the Lease Versus the Purchase of a $329,000

question 56

Multiple Choice

Baxter Contractors is evaluating the lease versus the purchase of a $329,000 machine. The machine will be depreciated using MACRS over a 4-year period, after which the machine will be worthless. MACRS allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The machine could be leased for $104,100 a year for 4 years. The firm can borrow money at 9.5 percent and has a 35 percent tax rate. The firm does not expect to pay any taxes for the next 5 years. What is the net advantage to leasing?

• A)-$1,667
• B)-$4,587
• C)-$18,640
• D)-$21,651
• E)-$30,277

Understand the impact of interest rates on loan repayments.

Calculate the amount borrowed or lent based on installment amounts.

Understand the difference in values due to timing of cash flows (beginning of period vs end of period).

Understand the core information requirements and challenges involved in both basic and extended MRP systems.

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Definitions:

Net Exports

The value of a country's total exports minus its total imports, representing the net trade balance of goods and services.

Interest Rates

The share of a loan levied as interest on the borrower, typically indicated as an annual percentage of the unpaid loan amount.

Twin Deficits

Refers to the situation where a country is running both a fiscal deficit (government spending exceeds revenue) and a current account deficit (imports exceed exports).

Budget Deficit

The condition when a government spends more than its income, requiring it to borrow money or accumulate debt to cover the gap.