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Lease or buy?
Reynolds Construction needs a piece of equipment that costs $350. Reynolds either can lease the equipment or borrow $350 from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Assume that Reynolds's tax rate is 40% and the equipment's depreciation would be $175 per year. If the company leased the asset on a 2-year lease, the payment would be $192.5 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should Reynolds lease or buy the equipment?
A. Lease
B. Buy
Dilwater Furniture purchased a corner lot in Pittsburg five years ago at a cost of $890,000. The lot was recently appraised at $1,070,000. At the time of the purchase, the company spent $80,000 to grade the lot and another $120,000 to pave the lot fo..
Explain how each item is important for one party but not the other given that both are considering the same loan (in terms of amount of money, length of time, borrowing firm).
In its closing financial statements for its first year in business, ABC Enterprises, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408, retained earnings of $1,620, net sales of $2,768, cost of goods sold of..
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He is willing to buy your C$200 for 1500 New Pesos. Should you accept the offer or cash the Canadian dollars in at the airport? Explain.
George Jefferson established a trust fund that provides $170,500 in scholarships each year in perpetuity for worthy students. The trust fund earns a 4 percent annual rate of return. How much money did Mr. Jefferson contribute to the fund assuming tha..
Your company has two divisions that have different risk profiles. Division A is less riskier than Division B. Since its less riskier, Division A's beta is 0.8 while division B has a beta of 1.2. Overall the firm’s beta is 1. If the risk free rate is ..
Joanie Fabrics makes custom purses and uses 800 yards of fabric per year. The fabric used for the purses has a fixed cost of $50 per order, a carrying cost of $2 per yard per year. When they place an order, it takes 5 days before the shipment is rece..
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The break-even model enables the manager of the firm to:
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