Your Firm Is Considering Leasing a New Computer

question 12

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%. What would the after-tax cash flow in year 9 be if the asset had a residual value of £500 (ignoring any possible risk differences) ?

• A)£-605
• B)£-955
• C)£-1,455
• D)£-1,305
• E)None of the above.

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Definitions:

Excise Tax

A tax directly levied on specific goods or services, such as tobacco or gasoline, usually to discourage their use or generate revenue.

Highly Inelastic

A situation where the demand or supply for a good or service is insensitive to changes in its price.

Highly Elastic

Describes a situation where the supply or demand for a product or service changes significantly in response to changes in price.

Per-Unit Subsidy

A government payment made for each unit of a product produced or sold, aimed at reducing the price or encouraging production.