Al-Tek Is Considering Leasing Some New Equipment for 5 Years

question 50

Multiple Choice

Al-Tek is considering leasing some new equipment for 5 years with annual payments.The equipment would cost $115,000 to buy and would be depreciated straightline to a zero salvage value.The actual salvage value is zero.The applicable pretax borrowing rate is 8 percent.The lessee does not expect to owe taxes for several years.The lessor's tax rate is 21 percent.What is the minimum lease payment that will be acceptable to both parties?

• A)$28,603.33
• B)$28,745.16
• C)$27,750.00
• D)$22,708.67
• E)$26,709.12

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Definitions:

Contribution Margin Ratio

The contribution margin ratio is the percentage of revenue that exceeds total variable costs, indicating how much of the sales revenue is available to cover fixed costs and generate profit.

Sales Dollars

The total revenue generated from the sale of goods or services, expressed in monetary units.

After Tax Profit

The net income a company retains after deducting all taxes owed to the government.

Income Tax Rate

The percentage of an individual or corporation's income that is paid to the government as tax.