Northern Lights Is Trying to Decide Whether to Lease or Buy

question 70

Multiple Choice

Northern Lights is trying to decide whether to lease or buy some new equipment.The equipment costs $54,000,has a 5-year life,and will be worthless after the 5 years.The company has a tax rate of 34 percent,a cost of borrowed funds of 8.75 percent,and uses straight-line depreciation.The equipment can be leased for $14,100 a year.What is the amount of the annual depreciation tax shield?

• A)$3,672
• B)$5,878
• C)$6,936
• D)$8,407
• E)$10,200

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Definitions:

Volcanic Dome Collapse

The event where a volcanic dome, formed by the slow extrusion of viscous lava from a volcano, collapses, potentially leading to explosive eruptions.

Mudflow Deposits

Sediments left behind by rapid flows of mud, often triggered by heavy rain or volcanic eruptions, that contain a mix of water and fine materials.

Pyroclastic Flow

A fast-moving current of hot gas and volcanic materials (lava blocks, pumice, ash) that flows down from a volcano during an explosive eruption.

High-Viscosity

A physical property indicating a fluid's resistance to flow, with higher values meaning greater resistance.