Multiple Choice Questions



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B. 

-$7,471




C. 

-$18,640




D. 

-$21,651




E. 

-$30,277

NAL = $329,000 - ($105,000) (PVIFA9.5%, 4) = -$7,470.52

 

AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 27-03 How to calculate the net advantage of leasing and related issues.
Section: 27.7
Topic: Net advantage to leasing - MACRS, No tax
 




41.

Frozen Foods Delivery is considering the purchase of a delivery truck costing $49,000. The truck can be leased for 3 years at $19,500 per year or it can be purchased at an interest rate of 7.5 percent. The estimated life of the truck is 3 years. The corporate tax rate is 34 percent. The company does not expect to owe any taxes for the next several years due to accumulated net operating losses. The firm uses straight-line depreciation. What is the net advantage to leasing? 
 



A. 

-$1,710




B. 

-$866




C. 

$304




D. 

$1,006




E. 

$1,394

NAL = $49,000 - ($19,500) (PVIFA7.5%, 3) = -$1,710

 

AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 27-03 How to calculate the net advantage of leasing and related issues.
Section: 27.7
Topic: Net advantage to leasing - SL, No tax
 




42.

Cayman Productions is considering either leasing or buying some new underwater photographic equipment. The lessor will charge $26,900 a year for a 2-year lease. The purchase price is $48,600. The equipment has a 2-year life after which time it will be worthless. Cayman uses straight-line depreciation, borrows money at 8 percent, and has sufficient tax loss carryovers to offset any taxes which otherwise might be owed for the next 4 years. What is the net advantage to leasing? 
 



A. 

-$1,315




B. 

-$1,298




C. 

$630




D. 

$1,343




E. 

$1,457

NAL = $48,600 - ($26,900) (PVIFA8%, 2) = $630

 

AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 27-03 How to calculate the net advantage of leasing and related issues.
Section: 27.7
Topic: Net advantage to leasing - SL, No tax
 




43.

Green Valley Farms is considering either leasing or buying some new farm equipment. The lessor will charge $27,500 a year for a 5-year lease. The purchase price is $136,000. The equipment has a 5-year life after which time it will be worthless. Green Valley Farms uses straight-line depreciation, has a 32 percent tax rate, borrows money at 10 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next five years. What is the net advantage to leasing? 
 



A. 

$20,574




B. 

$21,507




C. 

$22,638




D. 

$26,283




E. 

$31,753

NAL = $136,000 - ($27,500) (PVIFA10%, 5) = $31,753

 

AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 27-03 How to calculate the net advantage of leasing and related issues.
Section: 27.7
Topic: Net advantage to leasing - SL, No tax
 




44.

Cool Treats is considering either leasing or buying a new freezer unit. The lessor will charge $11,900 a year for a 2-year lease. The purchase price is $32,000. The freezer has a 2-year life after which time it is expected to have a resale value of $9,000. Cool Treats uses straight-line depreciation, borrows money at 8 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next 5 years. What is the net advantage to leasing? 
 



A. 

$2,167




B. 

$2,384




C. 

$2,573




D. 

$2,710




E. 

$3,063





 

AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 27-03 How to calculate the net advantage of leasing and related issues.
Section: 27.7
Topic: Net advantage to leasing -SL, No tax, Salvage
 




45.

Williams' Paints is weighing a lease versus a purchase of some new machinery. The purchase price is $312,000. The equipment will be depreciated to zero over the 4-year life of the project after which time it is expected to have a resale value of $76,000. The firm uses straight-line depreciation and can borrow money at 8 percent. The equipment can be leased for $66,000 a year for 4 years. Williams' Paints does not expect to owe any taxes for the next 4 years because of its net operating losses. What is the net advantage to leasing? 
 



A. 

$9,846




B. 

$11,900




C. 

$24,924




D. 

$28,207




E. 

$37,537





 

AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 27-03 How to calculate the net advantage of leasing and related issues.
Section: 27.7
Topic: Net advantage to leasing -SL, No tax, Salvage
 




46.

Bob's Pizza is considering either leasing or buying a new oven. The lease payments would be $10,200 a year for 3 years. The purchase price is $29,000. The equipment has a 3-year life and then is expected to have a resale value of $3,100. Bob's Pizza uses straight-line depreciation, borrows money at 10 percent, and has a 32 percent tax rate. What is the net advantage to leasing? 
 



A. 

$809




B. 

$833




C. 

$848

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