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

question 45

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.
-The lease rate for which Rearden will break even is closest to:

• A)$1,110,000.
• B)$1,130,000.
• C)$1,150,000.
• D)$1,160,000.

---

Definitions:

Grave Circle A

An archaeological site located in Mycenae, Greece, notable for its royal burials and rich grave goods dating from the 16th to the 11th century BCE.

Shaft Graves

A type of deep burial structure found in Mycenaean civilization, notable for containing valuable artifacts and indicating social status.

Lion Gate

The main entrance of the Bronze Age citadel of Mycenae in Greece, famous for its lintel topped by a relief sculpture of two lionesses.

Repoussé Image

A metalworking technique where the surface is shaped by hammering from the reverse side to create a raised design.