You Work for a Nuclear Research Laboratory That Is Contemplating

question 31

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 $475,000 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)-$376,439
• B)-$290,988
• C)-$248,464
• D)$26,228
• E)$103,511

---

Definitions:

Pareto Efficient

An allocation pattern of resources where attempts to advantage any individual or criterion will inevitably lead to the detriment of another individual or criterion.

Public Good

A type of good that is non-excludable and non-rivalrous, meaning individuals cannot be effectively excluded from use, and where use by one individual does not reduce availability to others.

Private Good

A type of good that is both excludable and rivalrous, meaning that non-paying consumers can be prevented from accessing it and its consumption by one individual prevents others from using it.

Utility Function

A mathematical representation in economics that captures the preference orderings of various bundles of goods for an individual or entity.