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Reynolds Corporation plans to purchase equipment at a cost of $3 million. The company's tax-rate is 30 percent and the equipment's depreciation would be $600,000 per year for 5 years. If the company leased the asset on a 5-year lease, the payment would be $700,000 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 11 percent interest on the loan. a. Calculate the cost of purchasing the equipment with debt. b. Calculate the cost of leasing the equipment. c. Calculate NAL? Should the company buy or lease the equipment? Why?
A financial institution is permitted to use leverage u to a maximum debt equity ratio of 20. Currently the bank finances its $100 of assets with $4.5 of equity and $95.5 of debt. If asset values fall to $91 the bank will have a capital shortage of $9..
Negus Enterprises has an inventory conversion period of 80 days, an average collection period of 47 days, and a payables deferral period of 40 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm's cash conversion cycl..
Royal Mediterranean Cruise Line's common stock is selling for $22 per share. The last dividend was $1.20, and dividends are expected to grow at a 6% annual rate. Flotation costs on new stock sales are 5% of the selling price. What is the cost of Roya..
On her 14th birthday, a girl inherits $14,000 which is to be used for her college education. The money will be deposited in a trust fund that will pay her R dollars on her 18th, 19th, 20th, and 21st birthday. A loan with a quarterly payment of $1440 ..
Create a portfolio of analytical reference materials including the financial reports for at least five years. This is your analytical permanent file for the selected company.
Consider the following cash flow [-100, + 230, -132]. We want to decide under what range of discount rate this is an advantageous investment. But noting the change in sign, we conclude IRR is not a suitable instrument.Write the expression for NPV usi..
Assume market interest rates have risen substantially in the 5 years since an investor purchased Treasury bonds that were offering a 6% return over their 15-year life. If the investor sells now he or she is likely to realize a total return that is:
f their retained earning balance was $450,000 last year and $912,000 how much did they pay in dividends? What is the yield to maturity for a bond with the following attributes? 12 years to maturity, $1000 Par, 10% coupon, selling price $870?
Compute the fixed and variable components of the monthly overhead costs using the high-low method. Using the equation developed in (a) above. Project the overhead costs for the month of august if the direct costs for the month of august if direct lab..
A project has the following estimated data: price = $79 per unit; variable costs = $46.61 per unit; fixed costs = $5,600; required return = 12 percent; initial investment = $6,000; life = six years. Ignore the effect of taxes. What is the cash break-..
You buy a share of The Ludwig Corporation stock for $23.30. You expect it to pay dividends of $1.09, $1.15, and $1.2133 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $28.95 at the end of 3 years. calculate the growth rat..
A large cow barn will cost $150,000 to build today and you figure it will add $18,000 per year to your after-tax cash flows for the next ten years. If the salvage value of the building is 50% after ten years and the cost of capital is 7%, what is the..
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