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

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Definitions:

Relationship-Oriented

An approach or behavior that prioritizes building and maintaining strong, positive relationships with others.

Task-Oriented

This term refers to focusing on completing specific tasks or objectives, typically in a work or project setting.

Low-Control Situations

Low-control situations refer to circumstances or environments where individuals or organizations have minimal influence or authority over outcomes or processes.

Team Management

The process of guiding and coordinating a group of individuals to achieve specific objectives or complete a project effectively.