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

question 34

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 $1.1 million,then the amount of the lease-equivalent loan is closest to:

• A)$3.7 million.
• B)$3.8 million.
• C)$3.9 million.
• D)$4.0 million.

---

Definitions:

Wilhelm Wundt

A German psychologist who is generally acknowledged as the founder of experimental psychology.

Consciousness

The quality or state of being aware of an external object or something within oneself, including thoughts, feelings, and the surrounding environment.

Conscious Experience

The awareness of internal and external events or stimuli, including thoughts, feelings, and sensations.

Historical Schools

Intellectual groups or movements in history that have had a significant impact on teaching and learning in their time and have contributed to the evolution of educational thought and practice.