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High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. The lease payments will be $79,000 for five years, due at the beginning of each year. This machine will save Farmer $29,000 per year through reductions in electricity costs. As an alternative, Farmer can purchase a more energy-efficient machine from Basic Machine Corporation (BMC) for $400,000. This machine will save $39,000 per year in electricity costs. A local bank has offered to finance the machine with a $400,000 loan. The interest rate on the loan will be 9 percent on the remaining balance and will require five annual principal payments of $80,000. Farmer has a target debt-to-asset ratio of 65 percent. Farmer is in the 34 percent tax bracket. After five years, both machines will be worthless. The machines will be depreciated on a straight-line basis.
A. What is the NAL of leasing? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
B. How much debt is displaced by this lease? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
A firm has total assets of $1,920,000. It has $828,000 in long-term debt. The stockholders equity is $628,000. What is the debt to total asset ratio?
Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz, and the acquisition would allow Schultz to better control its material supply. Arras currently has 3 million shares of stock outstanding..
A machine cost $70,200; it has an estimated residual value of $6,000 and an expected life of 300,000 units. What would be the depreciation in year three if 60,000 units were produced?
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The implementation of a pro-active ethics program is expected to result in
Grandview Clinic has fixed costs of $2 million and an average variable cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its 20,000 members. Past experience indicates that the population..
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Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.6% + 0.70RM + eA RB = –1.8% + 0.9RM + eB σM = 22%; R-squareA = 0.20; R-squareB = 0.15 what is the standard deviation of each stock?
May an attorney allow a financial planning organization to refer its members to him for preparation of wills and trusts and accept payment of part or all of his fee from the organization?
A firm has a net income before interest and taxes of $193,000 and interest expense of $28,000. What is the times-interest-earned ratio? And if the firm's lease payments are $48,500, what is the fixed charge coverage?
Suppose you believe that Alpha Copration's stock price is going to decline from its current level fo $82.50 sometime during th next 5 months. ou could buy a 5 month, a contact of put option at the strike price of $85 per share. If you bout this optio..
Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per..
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