Would you advice the mining company to lease the asset

Assignment Help Financial Management

Reference no: EM131923923

A) Mining company can purchase a drilling machine for GH¢ 50,000. It also has the option to lease the drilling machine for GH¢12,200 a year for a 5-year period. The expected life of the machine is given as 5 years and expected to have a salvage value of GH¢5000 in 5 years’ time. The mining company intends to buy the drilling machine a fair market value at that time. If the mining company decides to buy the machine, it can acquire financing at 20%. The tax rate is 34%. Assume depreciation is on straight line basis and lease rentals are tax deductible. Would you advice the mining company to lease the asset? (Assume payment is made at the end of the year)

B) The Government of Ghana is in the process of issuing a 4-year bond which has a coupon rate of 15%. The Face value is GH¢1m per bond. The Government pays interest semi-annually. The company’s cost of capital is 20% per annum. a. Advice the company on how much they should pay for the bond b. Calculate the duration of the bond. c. If the bonds were issued by a private company, would you be prepared to buy the same amount as in (a). Justify your position.

Reference no: EM131923923

Questions Cloud

What is the degree of total leverage of haunted forest : what is the degree of total (combined) leverage of Haunted Forest, Inc.?

What is cost of common stock for whitewall : Whitewall Tire Co. just paid an annual dividend of $1.20 on its common shares. what is the cost of common stock for Whitewall?

Emerging medical technology products business : Stacey Buyer is the CEO, chairman, founder and majority owner of Hanley Medical Ltd, an emerging medical technology products business.

After-tax cost of preferred stock for fjord : Fjord Luxury Liners has preferred shares outstanding that pay an annual dividend equal to $10 per year. what is the after-tax cost of preferred stock for Fjord?

Would you advice the mining company to lease the asset : Assume depreciation is on straight line basis and lease rentals are tax deductible. Would you advice the mining company to lease the asset?

Impairment of receivables to users of financial statements : Explain the usefulness of the raising of an allowance for impairment of receivables to users of financial statements.

What type of futures contract would hedge the risk : what type of futures contract would hedge the risk? what would our natural position look like?

Changed its capital structure to debt and equity : What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity?

Calculate the duration of bond : Calculate the duration of the bond. What does this mean?

User Account

All Pages