1. Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company is evaluating whether it should lease or purchase the machine. The firm could lease the equipment for 3 years for a lease payment of $29,000 per year, payable at the beginning of each year. The lease would include maintenance. The firm is in the 20% tax bracket, and it could obtain a 3-year simple interest loan, interest payable at the end of the year, to purchase the equipment at a before-tax cost of 10%. Borrowing and buying the steam finishing machine would result in total net cash flows of $2,400. $3,734. $1.510, and $79,556 in Year 0, Year 1, Year 2, and Year 3 respectively. Leasing the machine would result in a net cost of leasing of $23,200 in Year 0, Year 1, and Year 2. What is the net advantage to leasing?
a. -$70,306
b. $5,734
c. -$69,600
d. $17,600
2. Michael and Sandy purchased a home for $100,000 5 years ago. If it appreciated 6% semiannually, what is it worth today?
a. $133,823
b. $135,603
c. $106,000
d. $130,000
e. $100,000
3. Molly and Justin are considering contributing $5,000 to their favorite, tax deductible charity. This contribution will bring their total itemized deductions to $20,000. Assuming they are in the 28% marginal tax bracket, how much will they save in taxes by contributing this $5,000 to charity?
a. $840
b. $1,400
c. $5,000
d. $0
e. $2,000