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How do you determine whether you should lease or buy a piece of equipment for your business? Let's assume you're faced with the following lease-or-buy decision: You can purchase a $50,000 piece of equipment by putting 25 percent down and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500. The alternative is that you can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. You'll be responsible for the equipment's maintenance costs during the lease. You expect that your combined federal and state income tax rate will be 40 percent for the entire period at issue. You further assume that your cost of capital is 6 percent (the 10 percent financing rate adjusted by your tax rate). EXERCISE Using a cash flow analysis, make a lease-or-buy decision.
Explain whether you would you rather have a savings account that paid interest compounded on a monthly basis or compounded on an annual basis? Why?
A company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies average about 30% debt. Find v, s, rs, and WACC for firms U and L.
Calculate? Joe's investment return on the basis of the? US$ value of the shares.
You want to invest $1,000,000,000 for one year. Assume the interest rate in the Australia is 6% and the interest rate in the United States is 1%. The current spot rate is AUD/$ 1.32 and the one-year forward rate is AUD/$ 1.3307. Would you prefer inve..
Olivia plans to secure a 5-year balloon mortgage of $250,000 toward the purchase of a condominium.
Fabric Outlet has 17,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $1,280,000. The balance sheet shows a balance of $142,000 in the capital in excess of par value account and retained earnin..
Prepare the journal entry that Steeple would make for each of these restructurings.
If the discount rate is 8%, what is the duration of this set of payments?
Lenora’s creates exquisite gowns for special occasions on a prepaid basis only. The required return is 12.5 percent. The estimate for one gown order has cash flows of $165,000 in year 0 and -$188,000 in year 1. Which of these statements correctly app..
A Swiss sporting goods company borrows in yen in the Euro credit market at a rate of 4.91 percent from Bank of America using a three-month rollover loan. Bank of America assigns a default risk premium of 2.14 percent on the loan, and the country risk..
What is the yield of return on this investment so far in Julia’s home currency (USD) in one year from now if the exchange rate changes to EUR/USD=0.83?
The problem is the main one Quest has been working on: to increase sales of their tours. The solution they selected is to offer Quest’s most popular tours more often. The five most popular tours are to Italy, France, Australia, Belize, and Alaska. No..
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