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MNO Emergency Services Inc. is negotiating a guideline lease for five new ambulances with Leasing International. MNO has received its best offer from Betterbilt Ambulances for a total price of $1 million. The terms of the lease offered by International Leasing call for a payment of $205,000 at the beginning of each year of the five-year lease. As an alternative to leasing, MNO can borrow from a large insurance company and buy the ambulances. The $1 million would be borrowed on a term loan at a 10 percent interest rate for five years. The ambulances fall into the MACRS five-year class and have an expected residual value of $200,000. Maintenance costs would be included in the lease. If the ambulances are owned, a maintenance contract would be purchased at the beginning of each year for $10,000 per year. MNO plans to buy a new fleet of ambulances at the end of the fifth year. Leasing International has a 40 percent tax rate while MNO has a tax rate of 20 percent. a. What is the present value of the cost of owning the ambulances to MNO? b. What is the present value of the cost of leasing the ambulances to MNO? c. What is the net advantage to leasing? Should MNO lease or buy the ambulances?
We Guessed & You're Wrong has continued to operate and grow. In fact, business has increased to the point where new partners or staff might be considered. A new partner would bring capital of $1,000,000 to the firm and additional opportunities. Alter..
According to the payback method, which project should be selected? What is the chief disadvantage of this method? Why would anyone want to use this method?
On January 1, 2016, you take out a mortgage loan in the amount of $1,000,000 to buy a piece of development property. Interest will accrue on your loan at 4.5%, fixed. Monthly payments of principal and interest will be required on the first of each mo..
What is the accumulated sum of the following stream of payments? You have accumulated some money for your retirement. You are going to withdraw $87,617 every year at the beginning of the year for the next 16 years starting from today.
A Treasury issue is quoted at 107:17 bid and 107:31 ask. Assume a face value of $1,000. What is the least you could pay to acquire a bond?
Two large, publicly owned firms are contemplating a merger. No operating synergy is expected. However, since returns on the 2 firms are not perfectly positively correlated, the standard deviation of earnings would be reduced for the combined corporat..
If the economy booms, RTF, Inc. stock is expected to return 12 percent. If the economy goes into a recessionary period, then RTF is expected to only return 5 percent. The probability of a boom is 79 percent while the probability of a recession is 21 ..
Consider two stocks, Stock D, with an expected return of 21 percent and a standard deviation of 37 percent, and Stock I, an international company, with an expected return of 7 percent and a standard deviation of 17 percent. The correlation between th..
Strudler Real Estate, Inc., a construction firm financed by both debt and equity, is undertaking a new project. If the project is successful, the value of the firm in one year will be $320 million, but if the project is a failure, the firm will be wo..
East Coast Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $53,000 a year at the end of each year for the next 14 years. T..
A company must pay liabilities of $19000 and $11000 at the end of years 1 and 2, respectively. The only investments available to the company are 1 and 2 year zero coupon bonds with yields 6% and 7%, respectively. Calculate the cost to the company tod..
Given the following information, what is the required cash outflow associated with the acquisition of a new machine; that is, in a project analysis, what is the cash outflow at t = 0?
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