Daily Enterprises Is Contemplating the Acquisition of Some New Equipment

question 37

Multiple Choice

Daily Enterprises is contemplating the acquisition of some new equipment.The purchase price is $46,000.The company expects to sell the equipment at the end of year 4 for $2,500.The firm uses MACRS depreciation which allows for 33.33 percent,44.44 percent,14.82 percent,and 7.41 percent depreciation over years 1 to 4,respectively.The equipment can be leased for $12,300 a year for 4 years.The firm can borrow money at 7.5 percent and has a 35 percent tax rate.What is the incremental annual cash flow for year 4 if the company decides to lease the equipment rather than purchase it?

• A)-$14,434
• B)-$12,734
• C)-$10,813
• D)-$9,434
• E)-$8,766

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Definitions:

Quantity

The amount or number of a material or immaterial thing not requiring a unit of measurement to be specified or identified.

Supply

The total amount of a specific good or service available for purchase at any given time.

Demand

The desire of purchasers to buy a certain good or service, combined with their ability and willingness to pay for it.

Price

The monetary value assigned to a product or service for purchase.