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

question 9

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 $1.1 million,then the effective after-tax lease borrowing rate is closest to:

• A)8.0%
• B)12.8%
• C)15.4%
• D)17.0%

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Definitions:

Quantity Demanded

The total amount of a good or service that consumers are willing to buy at a given price level in a given period.

Labor

The human effort, both physical and mental, used to produce goods and services.

Equilibrium Wage

The wage rate at which the quantity of labor employers are willing to hire equals the quantity workers are willing to supply, with no excess demand or supply.

Quantity Of Labor

The total number of labor hours provided by workers for the production of goods or services.