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Mr. Richards has a rich client that has come to him for advice, purchase or lease a new Porsche Carrara? The car costs $108,000 and he would finance it for 84 months at a 3.5% rate with 20% down plus 6% sales tax. The lease would be for 36 months, require $10,000 cash buy down and it would cost $1,393.08 including tax each month. The client will purchase this as a company vehicle. Leasing allows full deduction of the capital buy down and the lease payment and all other related expenses. The purchase is subject to MACSR depreciation limits and deduction of interest. More importantly, the clients company earns an ROE of 10%. Should he lease or purchase? What is the real cost of the lease each month if the company tax rate is 35%?
4 Excel: Use the standard TVM setup to determine the monthly payments for the purchasing the vehicle given the information provided. Calculate the total out of pocket expenses for both the purchase and the lease. Calculate the opportunity cost (not keeping capital in the company earning 10%) of each transaction. Calculate the cost of the lease after taxes.
Written: Briefly describe the analysis that you have performed detailing the comparison of the purchase versus lease. Explain the difference in out of pocket expenses and the opportunity cost of each. Intuitively, what would be your recommendation to purchase or lease? Describe the real cost of the lease after tax and why that is important.
Let's assume that your required rate of return is 4%. And you intend to hold this bond until the maturity if you buy it. The face value of this bond is $100.
The Capital Asset Pricing Model is used to value equity securities. If the calculated CAPM price deviates from the price a stock is currently trading for, this implies there is an opportunity to profit by either buying the stock or selling it short.
The company is in the 35 percent marginal tax bracket and has a required return on all its projects of 18 percent. MACRS schedule.
Explain why the yield curves for US treasury securities normally slopes upward, so that Treasuries with longer terms to maturity have higher yields to maturity. What would a downward sloping treasury yield curve with yields steadily declining from 3 ..
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments.
You establish a straddle on Walmart using September call and put options with a strike price of $51. The call premium is $4.30 and the put premium is $5.05. What is the most you can lose on this position? what stock prices will you break even on the ..
One-year zero coupon treasury bonds are selling for £975.61 in the U.K. and for $963.86 in the U.S. Assume $1,000 face value in dollars for the U.S. bond and £1,000 face value for the U.K bond, and round interest rates to two decimal places, e.g. 2.5..
Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $3,000 every six months over the subsequent eight years, and ..
Suppose Nabisco Corporation just issued a dividend of $1.49 per share yesterday. what is the value of a share of common stock today?
What is the state of the project? Which activity has had the most positive impact on project? Which activity has had the most negative impact on project?
Assume a two-country world: Country A and Country B. Which of the following is correct about relative purchasing power parity (PPP) as related to these two countries? explain ?
Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need seven SALs, and each SAL costs $3,150 and requires $340 of maintenance each year. Assume that the ..
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