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You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $6,500,000, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years.
Assume that the tax rate is 35 percent. You can borrow at 10 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease?
The Court of Federal Claims and the Eighth Circuit Court of Appeals have decided the issue in favor of the government. However, the Ninth and Tenth Circuit Courts of Appeals have decided the identical issue in favor of the taxpayer. Discuss CMP's lit..
Give an example of how flexible budgeting is important in your work, life, or business. Tell us about an example of management by exception.
If an individual purchases property insurance on business equipment, the premiums are deductible, but if that same individual purchases property insurance on his home, the premiums are nondeductible. Can you explain this inconsistent tax treatment?
On September 14, Jennifer Rick went to Park Bank to borrow $1,800 at 7% interest. Jennifer plans to repay the loan on January 27. Assume the loan is on ordinary interest. (Use Days in a year table.) What interest will Jennifer owe on January 27? What..
The M&M theory states it does not make any difference from an economists view whether a firm raises financing as equity or debt. However floatation costs are more for equity than debt and interest on debt is tax deductible whereas dividends are not. ..
You bought one of Great White Shark Repellant Co.’s 10 percent coupon bonds one year ago for $770. These bonds make annual payments and mature 7 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 11 ..
Great Forks Hospital reported net income for 2012 of $2.4 million on total expenses of $30 million. Depreciation expense totaled $1 million. What were total expenses for 2012? What were total cash expenses for 2012?
Project K costs $48,152.88, its expected cash inflows are $10,000 per year for 10 years, and its WACC is 9%. What is the project's IRR? Project K costs $35,000, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 9%. What is t..
Eastern Clothing Company is considering manufacturing a new style of shirt, whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new wor..
Estes Park Corp. pays a constant $9.50 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share pr..
Star Light & Power increases its dividend 4.1 percent per year every year. This utility is valued using a discount rate of 12 percent, and the stock currently sells for $41 per share. If you buy a share of stock today and hold on to it for at least t..
A large retailer obtains merchandise under the credit terms of 3/20, net 40, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..
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