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An asset costs $840,000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The lessor can borrow at 5.8 percent and the lessee can borrow at 8.8 percent. The corporate tax rate is 34 percent for both companies. a. What lease payment will make the lessee and the lessor equally well off? b. Assume that the lessee pays no taxes and the lessor is in the 34 percent tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?
The interest rate on a five-year Treasury bonds is 3.1 percent, the rate on six-year T-bonds is 2.9 percent, and the rate on seven-year T-bonds is 2.6 percent. Using the expectations theory, compute the expected one-year interest rates in (a) Year 6 ..
What is the future value of a five-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
An oil company is drilling a series of new wells that are adjacent to an existing oil field. About 20% of the new wells will be dry holes and will produce zero oil. What is the correct discount rate for cash flows from the developed wells? The oil co..
A 5-year bond with a 4.45% coupon sells for $107.48. A 7-year bond with a 5.75% coupon sells for 116.564. The conversion factor for the 5-year bond is 0.933891 while the 7-year bond is 0.98588. Assume that the yields for both bonds are 6% and that co..
Compute the annual interest payments and principal amount for a Treasury Inflation-Protected Security with a par value of $1,000 and a 3-percent interest rate if inflation is 4 percent in year 1, 5 percent in year 2, and 6 percent in year 3.
What can a bank do to increase its core deposits? What are the costs and benefits of such efforts? Generally, how might management estimate the relative interest elasticity of various deposit liabilities of a bank?
Reliable Gearing currently is all-equity-financed. It has 28,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $380,000 with the proceeds used to bu..
Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 15 percent and the company just paid a div..
Assume large-company stocks returned 12.8 percent on average over the past 75 years. The risk premium on these stocks was 7.9 percent and the inflation rate was 3.6 percent. What was the average nominal risk-free rate of return for those 75 years?
Roger Bhd’s common stock is selling for RM29.50 and recently paid dividends of RM1.75 per share. The company has an expected growth rate of 4 percent. What is the stocks expected rate of return? Should you make the investment if your required rate of..
Ponzi Corporation has bonds on the market with 10.5 years to maturity, a YTM of 7.10 percent, and a current price of $1,051. The bonds make semiannual payments. What must the coupon rate be on these bonds?
MACRS 5-year property Year Rate 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% Ronnie's Custom Cars purchased some fixed assets two years ago for $50,000. The assets are classified as 5-year property for MACRS. Ronnie is considering selling the..
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