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a) In 2013, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2014, McDowell took possession of the leased property. The 20-year lease is effective for the period January 1, 2014, through December 31, 2033. Advance rental payments of $801,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $408,000 are due on January 1 for each of the last 10 years of the lease term. McDowell has an option to purchase all the leased facilities for $1 on December 31, 2033. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approximately $7,216,800. If the company had borrowed the money to purchase the facilities, it would have had to pay 9% interest. Compute the present value of lease value and purchase value.
b) Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,250 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost $90,490. What is the fair value of the note?
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The Heuser Company's currently outstanding bonds have a 9% coupon and a 14% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Heuser's after-tax..
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Grace wants to purchase a home with a list price of $250,000; she has a $25,000 down payment. Her salary is $85,000 per year. Currently, she has a $250 car payment and a student loan payment of $375. Her lender uses a housing expense ratio of 28% and..
The term structure of U. S. Treasury interest rates generally exhibits certain shapes during different stages of the business cycle. Discuss this relationship and explain why it holds, on average. What shape does the yield curve take prior to a reces..
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