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To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of each year (note: simple interest means that the borrower pays only interest during the life of the loan and repays the principal at maturity, just like a bond). The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands.) Please show work.
a. $96
b. $106
c. $112
d. $117
e. $123
Titan Mining Corporation has 9.5 million shares of common stock outstanding and 390,000 5 percent semi-annual bonds outstanding, par value $1,000 each. The common stock currently sells for $43 per share and has a beta of 1.25, and the bonds have 15 y..
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many corporate acquisitions result in losses to the acquiring firms stockholders. a coworker has asked you to explain
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In November 2006, Citi groups stock (NYSE:C) was trading at $49.59. Following the credit crisis on 2007-2008 and by at the end of October 2009, Citigroup stock price has plummeted to $4,27 Several banks went under, and the other saw their stock price..
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Proposing a new venture to the management of your company
A bond sells for $941.15 and has a coupon rate of 7.80 percent. If the bond has 21 years until maturity, what is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. O..
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