Morrison Industrial Tool can either lease or buy some equipment. The lease payments
would be $12,400 a year. The purchase price is $34,900. The equipment has a 3-year
life after which it is expected to have a resale value of $5,500. The firm uses straight-
line depreciation over the asset's life, borrows money at 8 percent, and has a 34 percent
tax rate. What is the incremental cash flow for year 1 if the company decides to lease
the equipment rather than purchase it?
Sixteen years ago, Alicia invested $1,000. Eight years ago, Travis invested $2,000.
Today, both Alicia's and Travis' investments are each worth $2,400. Assume that both
Alicia and Travis continue to earn their respective rates of return. Which one of the
following statements is correct concerning these investments?
A. Three years from today, Travis' investment will be worth more than Alicia's.
B. One year ago, Alicia's investment was worth less than Travis' investment.
C. Travis earns a higher rate of return than Alicia.
D. Travis has earned an average annual interest rate of 3.37 percent.
E. Alicia has earned an average annual interest rate of 6.01 percent.