Your Firm Is Considering Leasing a New Computer

question 20

Multiple Choice

Your firm is considering leasing a new computer.The lease lasts for 9 years.The lease calls for 10 payments of £1,000 per year with the first payment occurring immediately.The computer would cost £7,650 to buy and would be straight-line depreciated to a zero salvage over 9 years.The actual salvage value is negligible because of technological obsolescence.The firm can borrow at a rate of 8%. The corporate tax rate is 30%.This lease would be classified as a(n) :

• A)operating lease because the asset will be obsolete.
• B)operating lease because there is not amortization.
• C)leveraged lease because it is being financed.
• D)capital lease because the lease life is greater than 75% of the economic life.
• E)sale and leaseback because the company gets full use of the asset.

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Definitions:

Increase in Demand

A shift of the demand curve to the right, indicating that consumers are willing and able to purchase more of a good or service at every price.

Supply Curve

A pictorial display indicating how the price of an item affects the quantity of the item sellers are eager to sell.

Cost of Production

The total expenses incurred in the manufacture of a product, including raw materials, labor, and overhead costs.

Quantity Demanded

Quantity demanded refers to the total amount of a good or service consumers are willing to purchase at a specific price point, at a given time.