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Wolfson Corporation has decided to purchase a new machine that costs $4.5 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 30 percent. The Sur Bank has offered Wolfson a four-year loan for $4.5 million. The repayment schedule is four yearly principal repayments of $1,125,000 and an interest charge of 7 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1,275,000 per year are due at the beginning of each of the four years of the lease.
a. What is the NAL of leasing for Wolfson? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
b. What is the maximum annual lease Wolfson would be willing to pay? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
A five-year project has an initial fixed asset investment of $275,000, an initial NWC investment of $23,000, and an annual OCF of −$22,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
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A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, The company..
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Which of the following investments will have the HIGHEST FUTURE VALUE at the end of 10 years? Assume that the effective annual rate for all investments is the same.
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