You Work for a Nuclear Research Laboratory That Is Contemplating

question 28

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 $2.2 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 $600,000 per year for 4 years.Assume your company does not contemplate paying taxes for the next several years.You can borrow at 6 percent before taxes.What is the net advantage to leasing from your company's standpoint?

• A)$82,711
• B)$120,937
• C)$121,409
• D)$122,818
• E)$128,315

---

Definitions:

Self-correcting Economy

An economy that possesses mechanisms to automatically adjust itself to balance out recessions or inflations without external intervention.

Recessionary Gap

The difference between the actual output of an economy and its potential output if all resources were fully employed, indicating underperformance.

Expansionary Gap

A situation in an economy where total spending exceeds the production capacity, leading to inflationary pressures and a rise in output.

Effectiveness Lag

The time needed for changes in monetary or fiscal policy to affect the economy