Objective type questions on selecting lease option

Assignment Help Finance Basics

Reference no: EM1313775

1. Deep River Power Corporation recently sold an issue of preferred stock that had an after-tax yield of 9.6 percent. The company's new bonds recently sold at par with an after-tax yield of 8.1 percent. Both issues were placed primarily with corporate investors in the 40 percent tax bracket. Given that the preferred stock enjoys a 70 percent dividend tax exclusion for corporate investors, what was the percentage point difference in the before-tax yields between the two issues?

a. 1.50%

b. 1.20%

c. 2.59%

d. 2.81%

e. 0.21%

2. Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools that it needs for production during the next three years. A planned change in the firm's production technology will make the tools obsolete after 3 years. The firm will depreciate the cost of the tools on a straight-line basis. The firm can borrow $4,800,000, the purchase price, at 10 percent on a simple interest loan to buy the tools, or it can make three equal end-of-year lease payments of $2,100,000. The firm's tax rate is 40 percent. Annual maintenance costs associated with ownership are estimated at $240,000. What is the net advantage to leasing (NAL)?

a. $0

b. $106,200

c. $362,800

d. $433,100

e. $647,900

Reference no: EM1313775

Questions Cloud

Determining probability that teacher earns more per week : Determine the probability that a randomly selected teacher earns more than $525 per week?

Potential sources of financing : Finding additional borrowings required from bank at given current ratio - What other potential sources of financing are available to the company?

Ratio analysis of balance sheet and current ration : Ratio Analysis of balance sheet - Current ration, acid test ratio etc and Operating data for Gallup Corporation are presented

Invention and change in savings on equilibrium level : What kind of shocks could have caused this change to the money demand function? Determine the new interest rate and equilibrium level of output.

Objective type questions on selecting lease option : Objective type questions on selecting lease option and What is the net advantage to leasing NAL

Determining the probability of mean annual snowfall : Determine the probability that mean annual snowfall during 40 randomly picked years will exceed 111.8 inches?

Inventories reflected in the income statement : The cash generated from reducing inventories will be used to buy tax-exempt securities which have a? percent rate of return. What will your profit margin be after the change in inventories reflected in the income statement?

Find the work she does on the flight bag : A meter long 1.0 cm diameter nichrome heater wire is associated to a 12V battery. What is the magnetic field strength 1.0 cm away from the wire.

Calculating gdp and ni : The following is a list of figures for a given year in billions of dollars. Calculate the GDP and NI.

User Account

All Pages