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Question: Fez Fabulous Fabrics wishes to acquire a $100,000 multifacet cutting machine. The machine is expected to be used for eight years, after which there is a $20,000 expected residual value. If Fez were to finance the cutting machine by signing an eight-year "true" lease contract, annual lease payments of $16,000 would be required, payable in advance. The company could also finance the purchase of the machine with a 12 percent term loan having a payment schedule of the same general configuration as the lease payment schedule. The asset falls in the five-year property class for cost recovery (depreciation) purposes, and the company has a 35 percent tax rate. What is the present value of cash outflows for each of these alternatives, using the after-tax cost of debt as the discount rate?
Assuming a salvage value of zero, compute the depreciation expense associated with the items above for the first year.
If that option costs you $5 and the stock reaches $75, at which time you sell it, what was your dollar profit? Did you exercise the option? Why or why not? Was buying the option a "waste of money"? If the price of the stock falls to $7, what is yo..
Seven years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 a share, for a total of $900. Today he sold all 10 shares for $4,500. What was his average annual rate of return on this investment, before tax?
Explain how a protective put is like purchasing insurance on a stock ? Why is choosing an exercise price on a protective put like deciding which deductible to take on an insurance policy?
Do the data present sufficient evidence to indicate that the mean for the machine 1 is smaller than the mean for the machine 2? Use a 0.05 level of significance.
Michael's parents both work to help him pay his tuition. For each of the following risks or loss exposures, identify an appropriate risk management technique that could have been used to deal with the exposure.
ABC Company sells 3,027 chairs a year at an average price per chair of $152. The carrying cost per unit is $23.39. The company orders 363 chairs at a time and has a fixed order cost of $61.8 per order. The chairs are sold out before they are resto..
Assume that all sales and operating expenses, except depreciation, are cash. CWC's marginal tax rate is 40 percent.
share j has a beta of 1.35 and an expected return of 17 while share k has a beta of 0.8 and an expected return of 10.
Should management go ahead with the repurchase? Why or why not?
What is the net present value (NPV) of this decision if the cost of capital is 9%?
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What is the firm's i..
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