KP Inc. is negotiating a 10-year lease for three floors of space in a commercial office building.

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KP Inc. is negotiating a 10-year lease for three floors of space in a commercial office building. KP can't use the space unless a security system is installed. The cost of the system is $50,000, and it will qualify as seven-year recovery property under MACRS. The building's owner has offered KP a choice. The owner will pay for the installation of the security system and charge $79,000 annual rent. Alternatively, KP can pay for the installation of the security system, and the owner will charge only $72,000 annual rent. Assuming that KP has a 21 percent marginal tax rate, cannot make a Section 179 election to expense the $50,000 cost, and uses a 9 percent discount rate to compute NPV, which alternative should it choose?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Principles Of Taxation For Business And Investment Planning 2019 Edition

ISBN: 9781260161472

22nd Edition

Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan

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