Daily Enterprises Is Contemplating the Acquisition of Some New Equipment

question 37

Multiple Choice

Daily Enterprises is contemplating the acquisition of some new equipment.The purchase price is $46,000.The company expects to sell the equipment at the end of year 4 for $2,500.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.The equipment can be leased for $12,300 a year for 4 years.The firm can borrow money at 7.5 percent and has a 35 percent tax rate.What is the incremental annual cash flow for year 4 if the company decides to lease the equipment rather than purchase it?

• A)-$14,434
• B)-$12,734
• C)-$10,813
• D)-$9,434
• E)-$8,766

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Definitions:

Emotionally Unstable

A condition characterized by rapid, often extreme fluctuations in mood.

REM

Rapid Eye Movement sleep, a phase of sleep characterized by fast and random movement of the eyes, associated with vivid dreaming.

Brain Wave Pattern

The electrical activity in the brain, characterized by different frequencies and amplitudes, which can indicate states of consciousness, sleep, or alertness.

Awake and Alert

The state of being conscious and responsive to stimuli, indicative of normal brain function.