Reference no: EM133060641

1.AJC LLC. needs a mower that costs $1,149. They are considering either leasing or buying the asset with 100% borrowed funds. If AJC leases the equipment, they will not capitalize the equipment. Before the purchase, the firm has $9,000 in assets and $4,000 in liabilities. What is the debt ratio if they purchase the asset with debt? Note the firm's financial risk increases the same if the asset is purchased versus if it were leased.

Record your answer as a decimal to two decimal places.

2.What cost of capital should be used to evaluate an asset that can be purchased with 100% debt paying interest of 0.06%? Assume the firm is in the 50% tax bracket. Record your answer as a decimal.

3.The PV cost of owning a mower is $800, while the PV cost of leasing the mower is $806. What is the net advantage of owning the asset?

4.A firm is considering leasing or buying a mower. The mower costs $1,364 and is expected to create operating cash flows (this is the cash flows net of any taxes and other cash outflows) of $25 per year, for the next three years. At the third year, the mower can be sold for a net sale price of $70. If the appropriate discount rate is 5%, what is the cost of owning the mower? If the cost is negative, record your answer with a negative sign.

5.A firm is considering leasing or buying a mower. The mower costs $1000 and can be depreciated. It falls into the MACRS 3-year class (33%; 45%; 15% and 7%). A maintenance contract will be purchased for $200 per year, payable at the start of each year, for 4 years. The firm's tax rate is 30%. The firm expects to sell the mower for $70 at the end of the 3rd year.What is the net sale price when the mower is sold

6.A firm is considering leasing or buying a mower. The mower costs $1000. The firm is also considering a 3-year lease, with $429 per year lease payment payable at the start of each year. The firm is in the 30% tax bracket. What is the annual net operating cost associated with the lease?

7.A firm is considering leasing or buying a mower. The mower costs $1000 and can be depreciated according to the MACRS 3-year depreciation schedule (33%; 45%; 15%; and 7%). A maintenance contract will be purchased for $73 per year, payable at the start of each year, for 4 years. At the end of the fourth year, the mower is expected to have a value of $300. The firm is taxed at 30%What is the operating cash flow associated with the purchase of this asset at the end of the first year?

8.A firm is considering leasing or buying a mower. The mower costs $1,603 and can be depreciated. It falls into the MACRS 3-year class (depreciation rates of 0.33, 0.45, 0.15 and 0.07). A maintenance contract will be purchased for $200 per year, payable at the start of each year, for 4 years. At the end of the fourth year, the mower is expected to have a value of $300. What is the depreciation in the second year?