Merkon Inc

question 15

Multiple Choice

Merkon Inc.must choose between purchasing a new asset for $86,000 or leasing the asset for four years for $27,500 annual rent.The purchased asset would be 3-year recovery property that Merkon could use for four years,after which the asset would have no salvage value.Assuming a 35% tax rate,an 8% discount rate,and no Section 179 deduction or 50% bonus depreciation,which of the following statements is true? Use Appendix A,Table 7-2.(Round discount factor(s) to 3 decimal places.)

• A)Merkon's after-tax cost of the purchase is $5,953 less than the after-tax cost of the lease.
• B)Merkon's after-tax cost of the lease is $1,374 less than the after-tax cost of the purchase.
• C)Merkon's after-tax cost of the purchase is $8,226 less than the after-tax cost of the lease.
• D)None of the choices are correct.

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