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Suppose Procter and Gamble (P&G) is considering purchasing $ 11 million in new manufacturing equipment. If it purchases theequipment, 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 $ 1.00million per year. Alternatively, it can lease the equipment for$2.4 million per year for the five years, in which case the lessor will provide necessary maintenance. Assume P&G?s tax rate is 40% and its borrowing cost is 6.0%.
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 rate long dash—that is, what lease amount could P&G pay each year and be indifferent between leasing and financing a purchase?
The state lottery's million dollar payout provides for $2 million to be paid over 24 years in 25 payments of $80,000. The first $80,000 payment is made immediately, and the 24 remaining $80,000 payments occur at the end of each of the next 24 years. ..
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In 2 Design, Inc., manufactures and sells unique kitchen and dining room table sets. The headquarters of the company is in Portland, Oregon, with manufacturing facilities in North Carolina. While the owners of In 2 Design first considered a minimal, ..
If you require a rate of return of 7.88 percent, how much are you willing to pay today to purchase one share of Catfish stock?
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