Use the Following Information to Answer the Question(s)below

question 9

Multiple Choice

Use the following information to answer the question(s) below.
Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million dollars.This furnace will qualify for accelerated depreciation: 20% can be expense immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carry forwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease.
-Assuming that Rearden's annual lease payments are $1.1 million,then the effective after-tax lease borrowing rate is closest to:

• A)8.0%
• B)12.8%
• C)15.4%
• D)17.0%

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Definitions:

Ethical Responsibilities

The obligation of individuals and organizations to act in a manner that is fair, honest, and respectful to others and the environment.

Product Life Cycle

The sequence of stages that a product goes through from introduction to growth, maturity, and decline.

Operations Manager

An individual responsible for overseeing the production of goods and services, aiming to improve efficiency, productivity, and profitability within an organization.

Computerized Scanner

Electronic devices that capture images, text, or data and converts them into a digital format.