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LEASE OR BUY: A firm needs assembly line equipment for a new factory and is deciding if they should lease or buy the equipment. The project is expected to last 5 years, and the firm has a tax rate of 40 percent.
If the firm leases the equipment, it will do so at an annual cost of $1.45 million per year payable at the beginning of each year. The lease will be a tax-oriented lease, including maintenance/service of the equipment.
If the firm buys the equipment, it will cost $6 million. The firm will pay for it by borrowing money from the bank at 8 percent. It will be depreciated with MACRS and in the 3-year asset class. Additionally, the firm will buy a service contract from the manufacturer to cover maintenance/service at a annual rate of $250,000 payable at the beginning of each year. The firm expects to sell the asset at the end of 5 years for $450,000.
Find the net advantage to leasing (NAL), showing all steps.
The Yamaha Aggressive Growth fund has a 1.78 percent expense ratio. a. If you invest $15,000 in this fund, what is the dollar amount of fees (expense ratio) that you would pay this year? b. Based on the information in this chapter, the lecture, and y..
Tidewater Home Health Care, Inc. has a bond with eight years maturity, a coupon rate of 10% with interest paid annually, and a par value of $1000. The current market price of bond is $1251.22. What is the bond’s yield to maturity? What is its current..
Roscor Pharmaceuticals anticipates earnings of $539 million every year from now on if it simply maintains its current portfolio of assets and declines any new projects. What is the total dollar present value of the investment? What would Roscor’s new..
Screenshot, Inc., just paid a dividend of $3.72 per share on its stock. The dividends are expected to grow at a constant rate of 3.6 percent per year, indefinitely. Assume investors require an 14.4 percent return on this stock. What is the expected p..
Burke Tires just paid a dividend of D0 = $0.50. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the..
Company HTA had a free cash flow for the firm (FCFF) of $1,500,000 last year. It is expected the FCFF will keep a sustainable growth rate of 5%. The company has 2 million common shares outstanding.
Depreciation (of existing machinery): $10,000. Calculate the relevant cash flow for this firm for the year 2014.
Nelson Goddard died and left his grandson $50,000 cash in his will. Under the terms of Nelson's will, this bequest is not reduced by any amounts. Assume that Nelson used all but $10,000 of his $5.43 million exemption during his lifetime and that his ..
What is the yield to maturity, to the nearest percent, for the following bond: current price is $908, coupon rate is 11 percent, $1,000 par value, interest paid annually, eight years to maturity?
Two competing commercial banks situated in the same community have comparable asset portfolios, but one operates with a total capital ratio of 10 percent, while the other operates with a ratio of 12 percent. Compare the opportunities and risk profile..
Assume that a portfolio of stocks had an average return of 12% and a standard deviation of 19% over a certain holding period. In which range do the returns fall 99% of the time, assuming the returns are distributed normally?
What can you learn from Starbucks financial statements and performance about determining the overall health of companies?
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