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Part B Escalating steel costs have made Cable Corporation's ("Cable") Rewiring machine obsolete from an economic point of view. Only two machines are available to replace it. The Wire Streaming Machine (WSM) model is available only on a lease basis. The lease payments will be $65,000 for five years, due at the beginning of each year. This machine will save Cable $15,000 per year through reductions in steel costs. As an alternative, Cable can purchase a more energy-efficient machine from Taylor Equipment (TE) for $330,000. This machine will save $25,000 per year in steel costs. A local bank has offered to finance the machine with a $330,000 loan. The interest rate on the loan will be 10 percent on the remaining balance and will require five annual principal payments of $66,000. Cable has a target debt-to-asset ratio of 67 percent. Cable is in the 34 percent tax bracket. After five years, both machines will be worthless. The machines will be depreciated on a straight-line basis. 1. Should Cable lease the WSM machine or purchase the more efficient TE machine? 2. Does your answer depend on the form of financing for direct purchase? 3. How much debt is displaced by this lease? 4. Show how this lease would be disclosed on the balance sheet and income statement of Cable Corporation assuming it is classified as a "capital or financial" lease. 5. List the rules in Statement of Financial Accounting Standards No. 13 (FAS 13) and identify, with reasons, whether it would be correct or incorrect to disclose this lease as a capital lease. 6. Identify a listed company that utilizes capital leases, but also employs certain operating leases, and summarize and explain the disclosure provided for both types of leases on their financial statements (reference the source and date of the financials). The explanation should explain what the numbers represent. If numbers are not identifiable on the income statement, describe what charges would run through the income statement. (if a company cannot be identified with both capital and operating leases, then describe how an operating lease would be disclosed if it was in place.
The risk-free rate of return is 4.6 percent and the market risk premium is 12 percent. What is the expected rate of return on a stock with a beta of 1.2?
Describe how ‘sin’ taxes have changed in your state over time. How does this compare to other states in your region and how does the level of the ‘sin’ taxes in your state compare to the national average?
Clearly explain why the consultant's advice is not logical. That is, explain why Carazona's cost of equity in Indonesia would not be less than Carazona's cost of debt in Indonesia.
suppose you manage a 4.175 million fund that consists of four stocks with the following
"Financial analysts forecast Safeco Corp. (SAF) growth for the future to be a constant 10 percent. Safeco's recent dividend was $1.20. What is the value of Safeco stock when the required return is 12 percent?"
Collegiate Tuxedo rents apparel throughout the year. They have experienced non-payment by about 15 percent of their customers with an average loss of $200.
Briefly describe one way the U.S. financial markets impact the economy, one way the U.S. financial markets impact businesses, and one (1) way the U.S. financial markets impact individuals.
The stock of Lansing Company has a beta of 1.2. Lansing earned an annual return of 14% during a period when the return on the market portfolio was 12.5%.
If you can earn 8% each year,how much would you have to save each year if you want to retire in 35yrs with $2million?
Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent adn the discount rate is 11 percent, which system should the firm choose?
If a "typical" firm reports $20 million of retained earning on its balance sheet, could its directors declare a $20 million cash dividend without any qualms whatsoever?
Huang Company's last dividend was $1.25. The dividend growth rate is expected to be constant at 30% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (r) is 11%, what is its current stoc..
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