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Paisley Company needs a new machine, which it can depreciate completely on a straight-line basis over a period of 4 years. Alternately, it can lease the machine for four years, paying $11,000 in lease payments in advance each year and claiming the tax benefit at the end of the year. The tax rate of Paisley is 33% and it can borrow money at 10% interest rate. Calculate the purchase price of the machine, which will equalize the cost of leasing to the cost of buying.
Risk COLLAPSE From a borrower’s standpoint “short-term credit is generally riskier than long-term credit” (Brigham & Ehrhardt, 2013). Short term credit, even if it does have better rates than the long term alternative, would still require higher paym..
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $790 per set and have a variable cost of $390 per set. The company has spent $149,000 for a marketing study that determined the company will sell 53,000 sets per year ..
There is both a call option and a put option available on PQA Co. stock. Both options have a strike price of $23. Both options have a premium of $4. Is the current stock price higher or lower than $23 in the following two cases?
Assume that the bonds of highly leveraged ByHy Corporation currently have a yield to maturity of 8% and are due to mature in 1 year. Meanwhile, assume that 1 year Treasury securities are yielding 1%. Also assume that investors expect that there is a ..
You have a $48,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000 in Intel, $11,200 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?
How does a bank make a profit on loans? Discuss the importance of loans in attracting a borrower's other business with a financial institution.
Compute the fair value of a chooser option which expires aftern=10periods. At expiration the owner of the chooser gets to choose
Bob's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $700 per year forever. If the required return on this investment is 12 percent, how much will you pay for the policy?
Josh owns 2 call options on Foster Glass stock. The exercise price is $47.50 and the stock price at expiration is $49.01. What is the total payoff on the option contracts?
firm a stated rate of 10 percent interest. What is the effective rate of interest if the loan carries a simple 10 percent interest with a 20 percent compensating balance
Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below
An all-equity-financed firm plans to grow at an annual rate of at least 29%. Its return on equity is 45%. What is the maximum possible dividend payout rate the firm can maintain without resorting to additional equity issues?
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