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Solo Carriers has determined that a new specialised delivery truck needs to be purchased. Alternatively the truck can be leased from the manufacturer. The lease agreement requires 5 annual payments of R360 00, with the first payment due on the delivery of the vehicle. The truck can also be purchased at a cost of R2 million, inclusive of a 4 year maintenance contract with the manufacturer. The r2 million can be borrowed at an after tax rate of 12% per annum. The loan would be secured against the truck and would be amortised over the useful economic life of the vehicle. The loan payments for each of the first three years are R732 567 payable at the end of each year. The loan payment for year 4 amount to R725 637. The vehicle can be depreciated straight-line over the same period and will have a zero market value at the end of 4 years. Interest payments for the respective four years are R343 000; R276 189; R197 920 and R106 229. Assume a current corporate tax rate of 30%. Required: 1. Calculate the after-tax rate cash flows and the net present value of the cash outflows under each alternative. 2. Briefly indicate which alternative should be recommended.
Computer stocks currently provide an expected rate of return of 23%. MBI, a large computer company, will pay a year-end dividend of $3.40 per share. If dividend growth forecasts for MBI are revised downward to 10% per year, what will happen to the p..
Sam Boney, a local ice rink manager, is planning his retirement which will occur in 30 years. He plans to save $500 per month for the first 15 years and $700 per month for the second 15 years. What interest rate (APR) must you earn to achieve your go..
An investor holds an aggressive growth mutual fund and was forced to sell it at an inop- portune time when the fund had lost a considerable amount of money. She is upset at being forced out of the fund and claims that this endangers her ability to me..
Your wealthy uncle established a $1,000 bank account for you when you were born. For the first 8 years of your life, the interest rate earned on the account was 6.7%. Since then, rates have been only 4.7%. Now you are 22 years old and ready to cash i..
Which of the following miscellaneous itemized deductions is not subject to the 2% AGI Floor?
Business Ethics Jon-T Chemicals, Inc. (Chemicals), was an Oklahoma corporation engaged in the fertilizer and chemicals business. John H. Thomas was its majority shareholder and its president and board chairman. Chemicals incorporated Jon-T Farms, Inc..
The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2009 was $33 million. Common stock and the company’s long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are cu..
Assume that asymmetric information exists in the financial markets. If a firm's earnings fluctuate every year, everything else equal, which if the dividend policies discussed in CH 13 should be followed to provide investors with a perception of the l..
Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding with a current market price of $15 per share. Natsam’s board has decided to pay out this cash as a one-time dividend. What is the ex-dividend ..
At the end of each year, for 20 years, I deposit $1000 dollars into an account. The effective annual interest rate for this account (called account 1) is 5%. At the end of each year, i take the interest I am paid from this account and invest it into ..
Tampa Manufacturing, an established producer of printing equipment, expects its sales to remain flat for the next 3 to 5 years because of both a weak economic outlook and an expectation of little new printing technology development over that period. ..
The Fed cuts the Federal Funds rate and the Discount rate and the Prime goes down to 3.5 percent. Al Truistyk owns an exercise center and needs to upgrade his equipment in order to meet his customers’ needs. The equipment costs $275,000 and the lende..
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