Answer:
Gore Corp. is depreciating over a longer term than Ross Corp. This means that on a yearly basis, they will have less depreciation expenses. This would give them a higher net income than Ross Corp but as a result they will then have to pay a higher tax.
Ross Corp on the other hand will be depreciating over a shorter term so this would mean that they are recognizing a higher depreciation expense per year. This would mean that their net income will be lower and by extension their taxes will be lower as well.
For Q1, you have to set these equations equal to each other because it is asking how much of x is necessary to make the same amount of y, so:
3995 + 225.50x = 6500 + 100.25x
solve for x:, and get x=20
so 20 tons of sugar will give the companies the same cost.
For Q2: you need to plug in x=20 into either one of the original equations, and solve for y because this will give you the cost of transportation, so:
y= 3995 + 225.50(20)
y=$8,505 for the total cost
Answer:
B. Increases the expected present value of lease cash flows to the owner
Explanation:
A lease option gives a right but not the obligation to the renter of the property to buy the said property at today's current market price upon the expiry of lease term.
Lease option is similar to an option contract, the difference being, here instead of securities, leased property serves as the underlying asset and instead of option premium, the renter pays a premium each year in addition to the rental charges.
Lease cash flows refer to the present value of future cash flows which the lessor/owner receives in the form of lease rentals plus the added premium each year.
The more the benefits under lease option clause, the higher the premium charged and thus, more would be the future receipts of owner which would increase the expected present value of lease cash flows to the owner.
