You Work for a Nuclear Research Laboratory That Is Contemplating

question 31

Multiple Choice

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive,high-tech equipment) .The scanner costs $2 million and it would be depreciated straight-line to zero over 4 years.Because of radiation contamination,it will actually be completely valueless in 4 years.You can lease it for $475,000 per year for 4 years.Assume the tax rate is 34 percent.You can borrow at 10 percent before taxes.What is the net advantage to leasing from the lessor's viewpoint?

• A)-$376,439
• B)-$290,988
• C)-$248,464
• D)$26,228
• E)$103,511

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Definitions:

Underapplied Overhead

A condition where the applied manufacturing overhead is less than the actual manufacturing overhead.

Work in Process

This term refers to items that are in the production process but not yet completed, highlighting the inventory's ongoing status during manufacturing.

Direct Materials

Raw materials that are directly incorporated into a finished product and can be easily traced to it.

Direct Labor

The labor costs of employees who are directly involved in the production of goods or services.