Find return on equity for each of different leverage factors

Reference no: EM13310700

a used piece of heavy equipment is available for purchase at $300K. A rental company is deciding whether or not to purchase the equipment. The company estimates the equipment will create annual incomes of $110K and have annual operating costs of $20K. The equipment can be depreciated in five years with straight line depreciation. Based on the results from part a) below, should the rental company purchase the equipment if their corporate tax rate is 35%? consider a five year life project and an after tax marr of 15%.

a)determine the return on equity for each of three different leverage factors of 0, 0.4, and 0.7. Assume an interest rate on borrowed funds to be 10% compounded annually. The principal payments will be constant for each of the five years and the interest paid each year will be based on the outstanding debt balance.

b) before tax IRR?

after tax IRR with leverage factor=0?

after tax IRR with leverage factor=0.4?

after tax IRR with leverage factor=0.7?

Reference no: EM13310700

Questions Cloud

Estimate steady-state radon concentration in the crawl space : The house has a 1 m high dirt-floored crawl space. The emission rate of radon into the crawl space is reported to be 0.6 pCi/m2s. An exhaust system was added to provide 1 air exchange per hour (ACH) in the crawl space. The outdoor concentration of..

The role of the u.s congress regarding government contracts : Determine the most important factors in the role of the U.S Congress regarding government contracts.

Should the soil be compacted at the dry of optimum or at wet : A soil is to be compacted on a site and it is expected that the soil contains a high percentage of montmorillonite. Briefly explain the working principles of two tests that can be carried out to ascertain the presence of montmorillonite in the soil.

Choose a company should be a company with an online presence : Choose a company; this should be a company with an online presence (it can also have an in-store component) and should be a for-profit entity

Find return on equity for each of different leverage factors : A rental company is deciding whether or not to purchase the equipment. The company estimates the equipment will create annual incomes of $110K and have annual operating costs of $20K.

How many likes cif mead could sven chick : How many likes cif mead could Sven chick if he were to Id his helmet to the brim and hagar doesn't want to sit at the foot. Olaf and Leif insist On being adtaCeni one another and sittng on the side bo Erti's left Arvid, Bader

Role of social media in hospitality industry : Role of Social Media in Hospitality Industry

Calculate consolidation settlement 3 years after placement : The investigation results indicated that the clay had a saturated density of 1.6 Mg/m3, an average initial void ratio of 1.8 and the preconsolidation pressure at the mid depth of the clay layer was 20 kPa.

Create a short email message on the importance of a college : Email the message to your instructor using the email address provided by them and carbon copy an alternate email address (you can use your own address).

User Account

All Pages