You Work for a Nuclear Research Laboratory That Is Contemplating

question 43

Multiple Choice

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment) . The scanner costs $2 million and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. You can lease it for $500,000 per year for 4 years. Assume the tax rate is 34 percent. You can borrow at 10 percent before taxes. What is the net advantage to leasing from the lessor's viewpoint?

• A)-$290,988
• B)-$267,307
• C)-$248,464
• D)$26,228
• E)$103,511

---

Definitions:

Noncash Assets

Assets that are not in the form of cash or cash equivalents, including property, equipment, and intellectual property.

Net Income and Losses

The difference between total revenues and total expenses, indicating the financial performance of a company over a specific period.

Sale

A transaction between two parties where the ownership of goods, services, or assets is transferred from the seller to the buyer for an agreed amount of money or value.

Journal Entry

A record in the books of accounts that represents a business transaction and its effects on the company's finances.