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Mr. Richards has a rich client that has come to him for advice, purchase or lease a new Porsche Carrara? The car costs $108,000 and he would finance it for 84 months at a 3.5% rate with 20% down plus 6% sales tax. The lease would be for 36 months, require $10,000 cash buy down and it would cost $1,393.08 including tax each month. The client will purchase this as a company vehicle. Leasing allows full deduction of the capital buy down and the lease payment and all other related expenses. The purchase is subject to MACSR depreciation limits and deduction of interest. More importantly, the clients company earns an ROE of 10%. Should he lease or purchase? What is the real cost of the lease each month if the company tax rate is 35%?
Excel:Use the standard TVM setup to determine the monthly payments for the purchasing the vehicle given the information provided. Calculate the total out of pocket expenses for both the purchase and the lease. Calculate the opportunity cost (not keeping capital in the company earning 10%) of each transaction. Calculate the cost of the lease after taxes.
Written:Briefly describe the analysis that you have performed detailing the comparison of the purchase versus lease. Explain the difference in out of pocket expenses and the opportunity cost of each. Intuitively, what would be your recommendation to purchase or lease? Describe the real cost of the lease after tax and why that is important.
Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as which one of the following?
Based on the corporate valuation model, Lee Inc.'s total corporate value is $750 million. Its balance sheet shows $100 million notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of ..
The Corrigan Company just paid a dividend of $1.28 per share, and that dividend is expected to grow at 15% for each of the next three years then at a constant rate of 3.5% per year in the future. What is the company's current stock price?
Skillet Industries has a debt–equity ratio of 1.4. Its WACC is 9.8 percent, and its cost of debt is 7.5 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What would the cost of equity be if the debt–equity r..
Find the present value of the following ordinary annuities: PV of $300 each six months for five years at a simple rate of 12 percent, compounded semi annually
Brynn borrows $17,000 from the bank at an annual interest rate of 6% compounded monthly. She decides that she can make monthly payments of $250. How long will it take until she pays off the loan?
Tariq purchased a new business asset (five-year property) on September 30, 2015, at a cost of $150,000. On October 4, 2015, Tariq placed the asset in service. This was the only asset Tariq placed in service 2015. Tariq did not elect s. 179 and follow..
The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,390,000, and the December 31, 2014, balance sheet showed long-term debt of $1,560,000. The 2014 income statement showed an interest expense of $93,000. What was the fir..
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.10 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..
Y3K, Inc., has sales of $6,309, total assets of $2,925, and a debt–equity ratio of 1.60. If its return on equity is 11 percent, what is its net income?
List and explain the three financial factors that influence the value of a business.
You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 6% with interest paid monthly. What will be the monthly loan payment?
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