Deep Mining, Inc

question 62

Multiple Choice

Deep Mining, Inc., is contemplating the acquisition of some new equipment for controlling coal dust that costs $174,000. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. After that time, the equipment will be worthless. The equipment can be leased for $54,400 a year for 4 years. The firm can borrow money at 11.5 percent and has a 36 percent tax rate. What is the net advantage to leasing?

• A)$2,429
• B)$2,607
• C)$3,611
• D)$3,847
• E)$3,950

---

Definitions:

Quarterly Dividend

A distribution of a portion of a company's earnings, decided by the board of directors, paid to shareholders every quarter.

Preferred Shares

Types of stock that provide dividends before dividends are distributed to common stockholders and typically do not provide voting rights.

Income Yield

The earnings generated and realized on an investment over a particular period of time, typically expressed as a percentage of the investment's cost.

Break Even

The point at which total cost and total revenue are equal, resulting in no net loss or gain for a business.