Ellis Enterprises is considering whether to lease or buy some necessary equipment it needs for a project that will last the next 3 years. If the firm buys the equipment, it will borrow $4,800,000 at 8.0% interest. The firm's tax rate is 35%, and the firm's before-tax cost of debt is 8.0%. Annual maintenance costs associated with ownership are estimated to be $400,000, and the equipment will be depreciated on a straight-line basis over 3 years. What is the annual end-of-year lease payment (in thousands of dollars) for a 3-year lease that would make the firm indifferent between buying or leasing the equipment? (Suggestion: Delete 3 zeros from dollars and work in thousands.) Do not round your intermediate calculations.
A. $2,599
B. $2,147
C. $2,260
D. $1,695
E. $1,808
Answer: C
You might also like to view...
Utah Co sold merchandise to Big Sky Corp on December 1, 2016, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31 . What amount should Utah recognize as interest revenue on the maturity date of the note?
a. $ -0- b. $ 60 c. $120 d. $180
For a manufacturer, the budgeted income statement ________.
A) reports cash paid for purchases of direct materials B) includes amounts from the sales, cost of goods sold, cash, and capital expenditures budgets C) is accrual-based D) does not include depreciation expense
Which type of budgeting considers inputs from employees at all levels of a company?
A) Top-down budgeting B) Selective budgeting C) Target budgeting D) Participative budgeting
Which of the following techniques should be followed to communicate ethically and responsibly??
A) A sender should embellish facts to make ideas sound better.? B) ?A sender should use such words that convey several meanings in addition to what is intended. C) ?A sender's message should support his or her interests. D) ?A sender's viewpoints should be supported with objective facts.