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Suppose Procter and Gamble? (P&G) is considering purchasing $10 million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it on a? straight-line basis over the five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $2.00 million per year.? Alternatively, it can lease the equipment for $2.3 million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G?s tax rate is 30% and its borrowing cost is 6.5%. a. What is the NPV associated with leasing the equipment versus financing it with the lease equivalent? loan? b. What is the? break-even lease ratelong dash—that ?is, what lease amount could? P&G pay each year and be indifferent between leasing and financing a? purchase?
Bob is considering acquiring a commercial property for $100,000. He expects the property will generate NOIs of $10,000 in year 1, $11,000 in year 2, $12,000 in year 3 and $12,500 in year 4. He wants you to do a three-year cash flow simulation. At the..
The state of Indiana charges a retail sales tax of 7%. Consider the following information for three households: Calculate tax liability for each household. What is the average tax rate for each household? What is the marginal tax rate for each househ..
A firm's preferred stock pays an annual dividend of $8, and the stock sells for $72. Flotation costs for new issuances of preferred stock are 3% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 38%?
When interest rates go up, duration based calculation shows that the value of the bond will go down and vice-versa. Why is the convexity adjustment always a positive amount regardless of the direction of the interest rate change?
We have 20,000 shares of IBM, which we bought for $50 per share. We buy protective puts against them at a strike price of $62 for which we have to pay a $2 premium. Explicate on the results and the ROR we make in the following two cases. Explain the ..
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: The machinery falls into the MACRS 3..
Explain why, in practice, they contain the same information? Repeat the previous problem, but now assume the one-month LIBOR rate on December 1 was 5.5 percent.
The chances of risk events occurring and their respective costs increasing change over the project life cycle. What is the significance of this phenomenon to a project manager? What is the difference between mitigating a risk and contingency planning..
A project has a contribution margin per unit of $9.64, fixed costs of $98,000, depreciation of $14,500, variable costs per unit of $21.07, and a financial break-even point of 13,039 units. What is the operating cash flow at this level of output?
Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of $1000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1100. The bonds are callable in 5 years at a call price of $1050. What is their yield to m..
Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 8.80 percent, and the 6-year Treasury rate is 9.20 percent. Further, you expect that real interest rates will be 4...
All of the following are true regarding the tax implications of health insurance EXCEPT:
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