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

question 3

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 $1.2 million, then use the direct method, the NPV of leasing is closest to:

• A) ($165,000)
• B) ($95,000)
• C) $0
• D) $95,000

---

Definitions:

Ethical Leadership

The practice of leading by demonstrating ethical behavior, fostering an ethical culture, and making decisions based on ethical principles.

Aristotle

An ancient Greek philosopher and polymath whose writings cover many subjects, including physics, biology, ethics, politics, and logic.

Virtue-Based

Pertains to ethical frameworks that emphasize character and virtues in moral evaluation or decision making.

Leader's Character

Leader's Character refers to the moral and ethical qualities and traits of an individual in a leadership position, influencing their decision-making and relationships with followers.