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As a financial analyst for Muffin Construction, you have been asked to recommend the method of financing the acquisition of new equipment needed by the firm. The equipment has a useful life of 8 years. If purchased, the equipment, which costs $700,000, will be depreciated under MACRS rules for 7-year class assets. If purchased, the needed funds can be borrowed at a 10 percent pretax annual rate. Muffin's weighted after-tax rate of capital is 12 percent. The actual salvage value at the end of 8 years is expected to be $50,000. Muffin's marginal ordinary tax rate is 40 percent. Annual, beginning-of-year lease payments would be $160,000.
a. Compute the net advantage to leasing.
b. Should Muffin lease or own the equipment?
Calculate the required rate of return on a company’s stock that has the following characteristics: (a) Constant Growth Rate: 5%, (b) Price: $25.00, and (c) Dividend (Has Been Paid): $5.00.
Explain why there are so many different regulatory agencies. Devise a regulatory structure that would improve the existing system.
What is the yield to maturity on a $1,000 face value discount bond maturing in two years that sells for $800 today? What is the annual rate of return on a bond with an annual coupon rate of 10 percent, a face value of $100,000, and its price rises fr..
Greener Grass Co. pays a constant annual dividend of $1 a share and has 1,000 shares of common stock outstanding. The company: must always show a current liability on its balance sheet of $1,000 for dividends payable.
In a tax less world with no brokerage coasts, repurchases and dividends have the same effect on shareholder wealth. In the real world, however, repurchases provide more preferable tax treatment than dividends to ordinary investors. Is it necessary fo..
U.S. Telephone Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10% (based on the unit sales price per phone). Fixed manufacturing costs total $1,040 per month, while fixed selling and administrativ..
Which of the following statements about short-term debt is(are) most correct?
An investor purchases a stock for $45 and a put for $.85 with a strike price of $41. The investor sells a call for $.85 with a strike price of $54. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sig..
Create a budget for the set design and construction project and why don't you need to take into account fringe benefit costs for the workers?
Wells Water Systems recently reported $12,550 of sales, $4,250 of operating costs other than depreciation, and $1,700 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and i..
Find the APR, or stated rate, in each of the following cases (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.):
Zap Inc's preffered stock pays out a quarterly dividend of $0.75. The firm's beta on preffered stock is $1.50, the T-bill is 3%, the S&P is 12%. What is the current price of the preffered stock?
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