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The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.8 million in annual pretax cost savings. The system costs $9.8 million and will be depreciated straight-line to zero over its five-year life, after which it will be worthless. Wildcat’s tax rate is 34 percent, and the firm can borrow at 9 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $2,050,000 per year. Lambert’s policy is to require its lessees to make payments at the start of the year. Suppose Lambert requires Wildcat to pay a $700,000 security deposit at the inception of the lease.
Calculate the NAL with the security deposit.
First United Bank charges 11.1% compounded semiannually. As a potential borrower, which bank would you go for a new loan?
A company currently pays a dividend of $2.00 per share (i.e., D0=$2.0). What is your estimate of the company's current stock price, P0?
Use your calculator to determine the original deposit amount.
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. Schenkel has 435,000 shares outsta..
Your company is planning to borrow $1.75 million on a 9-year, 13%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?
An increase in coupons increases the duration of the bond. The longer the maturity of a bond, the greater will be its duration. An increase in the interest rate decreases the duration of the bond. All other things equal, which of the following bond p..
What happens to the portfolios if the stock price drops to near zero? Determine which portfolio performs better compare at T.
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,080,000 and will be sold for $1,280,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax s..
On average, it costs an organization six times more to sell to a new customer than to sell to an existing customer. As the co-owner of a medium-sized sports equipment distributor, you have recently been notified that sales for the past three months h..
One More Time Software has 9.4 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 120.2 percent of par. What is the current yield on the bonds? The effective annual yield?
AFN equation Broussard Skateboard's sales are expected to increase by 15% from $8.2 million in 2013 to $9.43 million in 2014. Its assets totaled $3 million at the end of 2013. Use the AFN equation to forecast Broussard's additional funds needed for t..
Explain why a firm needs to hedge if stockholders are holding a well-diversified portfolio of assets? What is the impact of hedging on a firm’s overall cost of capital? Will it affect both the cost of debt as the cost of equity? Explain.
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