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

question 21

Multiple Choice

Use the following information to answer the question(s) below.
Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed 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 carryforwards,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 $1.2 million,then the amount of the lease-equivalent loan is closest to:

• A)$3.8 million.
• B)$3.9 million.
• C)$4.0 million.
• D)$4.2 million.

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Definitions:

Rectus Abdominis

A long muscle that runs vertically on each side of the anterior wall of the human abdomen, responsible for flexing the lumbar spine.

External Oblique

A large, flat muscle on the outside of the abdomen, essential for trunk rotation and lateral flexion of the torso.

Internal Oblique

The internal oblique is a muscle in the abdominal wall that plays a key role in respiration, posture, and abdominal pressure.

Fascicle Orientation

Refers to the direction and arrangement of muscle fiber bundles, which influence a muscle’s strength and range of motion.