You Work for a Nuclear Research Laboratory That Is Contemplating

question 5

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.Assume the tax rate is 33 percent.You can borrow at 6 percent before taxes.How much would the lease payment have to be in order for both the lessor and the lessee to be indifferent about the lease?

• A)$500,000
• B)$521,909
• C)$552,200
• D)$563,333
• E)$576,477

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Definitions:

Marginal Tax Rates

The tax rate that applies to the next dollar of taxable income.

Vertical Equity

A principle in taxation that suggests taxpayers with a greater ability to pay should contribute more in taxes.

Ronald Reagan

The 40th President of the United States, serving from 1981 to 1989, known for his economic policies known as "Reaganomics".

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the proportion of any additional dollar of income that will be taken as tax.