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Suppose a company wants to decide whether to lease or purchase an asset.
Purchase: The capital cost required to purchase the asset is $200,000 (at time zero) with a salvage value of $60,000 at the end of the 5th year. The purchased asset can be depreciated based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS (Links to an external site.)Links to an external site.) over six years (from year 0 to year 5).
Lease: The asset can be leased for 5 years (Operating Lease) and annual lease payments (LP) of $40,000 (from year 1 to year 5). The asset would yield the annual revenue of $85,000 for five years (from year 1 to year 5) and operating cost of $25,000 for year 1 to 5. Considering income tax of 40% and minimum ROR of 12%, calculate the ATCF and NPV for both alternatives and conclude which alternative is a better decision.
A stock is expected to pay the following dividends: $1.30 4 years from now, $1.60 5 years from now, and $1.90 6 years from now, followed by growth in the dividend of 8% per year forever after that point. There will be no dividends prior to year 4. Th..
Suppose you know that a company’s stock currently sells for $50 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it..
On July 1, an investor holds 50,000 shares of a certain stock. The market price is $29 per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September Mini S&P 500 futures contract..
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows: Revenue (10000 visits) $409699 Wages and benefit $226160 Rent $5349 Depreciation $25568 Utilities $2442 Medical supplies $48524..
What are the average national mortgage rates for 30-year fixed, 15-year fixed, and adjustable-rate mortgages?
When the level of working capital is increased, all of the following are expected to occur except
Caan Corporation will pay $3.56 per share dividend next year. The company pledges to increase its dividend by $3.75 per cent per year indefinitely. If you require a return of 11 percent on your investment, how much will you pay for the company's stoc..
You are a hedger who takes a long position in an oil futures contract on November 1, 2009 to hedge an exposure on March 1, 2010. The initial futures price is $64. On December 31, 2009 the futures price is $63. On March 1, 2010 it is $69. The contract..
The weighted average cost of capital for a firm with a 60% debt and 40% equity in its capital structure, an 8% cost of debt, a 15% cost of equity, and a 35% tax rate would be: a. 7.02% b. 9.12% c. 10.80% d. 11.08% e. 13.80%
You believe you will need $150,000 annually to live comfortably while retired. You plan on retiring when you are 65 and will begin withdrawing funds from your retirement account on your 66th birthday. If you expect to need 25 years of retirement inco..
The monthly returns for Company G, Company S, and Company N were 8.95 percent, -1.67 percent, and -.06 percent. What is your portfolio return?
The Millers have recently experienced some unexpected expenses and had to make two consecutive withdrawals from their portfolio: $7500 on March 13, 2015 and another $11000 on the last day of March. What is the time-weighted return of their portfolio ..
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