A manager has decided to buy a widget. Two alternative financing methods are available: $($A$)$ use a financial lease or $($B$)$ purchase the widget using owner financing and borrowed capital. The financial lease is a $3$ year lease with annual lease payments of $$6,500$ paid at the beginning of each year $($a lease payment is tax deductible; assume it can be claimed at the beginning of each year$).$ The manager can buy the widget for $$20,000$ and sell it again in $3$ years for $$5,000.$ A bank will loan $$15,000$ and the loan will be fully amortized at $10\%$ over $3$ years with annual payments. The IRS will allow the widget to be depreciated over $10$ years. The marginal tax rate is $15\%.$ The manager requires at least a $10\%$ pre$-$tax return on capital. Assume that the inflation rate is $0\%.$ Should the manager buy or lease?

What is the after$-$tax discount rate?

ANSWER: $[$ Select $]["10\%","8\mathrm{.}5\%","15\%","3\%",$ "None of the above"$]$

What is the after$-$tax lease payment $($absolute value$)?$

ANSWER: $[$ Select $]["$$$0","$$$15,310","$$$5,525","$$$2,000",$ "None of the above"$]$

What is the annual depreciation if you lease the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$0","$$$15,310","$$$5,525","$$$2,000",$ "None of the above"$]$

What is the tax savings from depreciation if you lease the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$0","$$$15,310","$$$5,525","$$$2,000",$ "None of the above"$]$

What is the present value of the lease payment $($absolute value$)?$

ANSWER: $[$ Select $]["$$$0","$$$15,310","$$$5,525","$$$2,000",$ "None of the above"$]$

What is the net present value of leasing the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$0","$$$15,310","$$$5,525","$$$2,000",$ "None of the above"$]$

What is the annuity equivalent of leasing the widet $($absolute value$)?$

ANSWER: $[$ Select $]["$$$0","$$$15,310","$$$5,525","$$$5,995",$ "None of the above"$]$

What is the after$-$tax terminal value if you purchase the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$6,000","$$$6,350","$$$1,700","$$$2,000",$ "None of the above"$]$

What is the annual depreciation if you purchase the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$6,000","$$$6,350","$$$1,700","$$$2,000",$ "None of the above"$]$

What is the accumulated depreciation over the first three years if you purchase the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$6,000","$$$6,350","$$$1,700","$$$2,000",$ "None of the above"$]$

What is the annual tax savings from depreciation if you purchase the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$1,700","$$$900","$$$300","$$$2,000",$ "None of the above"$]$

What is the present value of the after$-$tax terminal value if you purchase the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$14,262","$$$5,584","$$$766","$$$4,971",$ "None of the above"$]$

What is the present value of the tax savings from depreciation if you purchase the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$14,262","$$$5,584","$$$766","$$$4,971",$ "None of the above"$]$

What is the net present value of purchasing the widget $($absolute value$)?$

ANSWER: $[$ Select $]["$$$14,262","$$$5,584","$$$766","$$$4,971",$ "None of the above"$]$

What is the annuity equivalent of purchasing the widet $($absolute value$)?$

ANSWER: $[$ Select $]["$$$14,262","$$$5,584","$$$766","$$$4,971",$ "None of the above"$]$

Leasing the Widget has a lower cost so you would choose to lease the Widget?

ANSWER: $[$ Select $]["$True$",$ "False"$]$