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Patriot Welding is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL), in thousands?
Jefferson requires a 12 percent annual return on this type of project and its marginal tax rate is 40 percent.
The project requires an initial investment in net working capital of $163,000, and the fixed asset will have a market value of $188,000 at the end of the project. Assume that the tax rate is 30 percent and the required return on the project is 8 p..
Myers Business Systems is estimatingthe introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are below:
a stock is bought for $22.00 and sold for $26.00 one year later, immediately after it has a paid a dividend of $1.50. What is the capital gain rate for this transaction?
Patience, Inc., just paid a dividend of $3.15 per share on its stock. The dividends are expected to grow at a constant rate of 6.00 percent per year, indefinitely. Assume investors require an 11 percent return on this stock.
The Conely Company is about to go public. It currently has after tax earnings of $7,500,000, and 2,500,000 shares are owned through the present stockholders.
Jack and diane are married and both executives at a large multinational electronics corporation. The couple holds substantial company stock and majority of their retirement funds depend on corporation stock performances.
Calculate the company's weighted average cost of capital assuming that its new financing will consist of 40% debt, 10% preferred stock, and 50% retained earnings.
Polk Products is considering an investment project with the following cash flows. Determine the project's discounted payback period.
The Joe Corporation is experiencing financial difficulties. Its dividends and earnings are falling at a constant rate of 7 percent per year. Its stock just paid an yearly common stock dividend of $1.50 each share.
The cost of capital is 14 percent, and the firm's tax rate is 40 percent - Estimate the present value of the tax benefits from depreciation
What is the equivalent annual cost of one these machines if the required return is 16 percent? Use depreciation using straight line to zero. Assume tax rate of 40%.
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