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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%?
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.
On its 12/31/13 balance sheet, Acton, Inc. showed $510 million of retained earnings, and $700 million was shown in the prior year. Assuming that no earnings restatements were issued, is it possible that Acton paid dividends in 2013? Explain.
What is your net profit per share from this position?
Even if the pure expectations theory is correct, there might at times be an inverted Treasury yield curve. If the yield curve is inverted, short-term bonds have lower yields than long-term bonds. The most likely explanation for an inverted yield curv..
The common stock of Air United had annual returns of 13.7 percent, 4.8 percent, -6.7 percent, and 27.9 percent over the last four years, respectively. What is the standard deviation of these returns?
Calculate the financial break-even point: BEP= Fixed Costs/ (unit price – variable unit costs).
A partial balance sheet and income statement for King Corporation follow: The trade receivables at December 31, 2010, were $280,000, net of an allowance of $8,000, for a gross receivables figure of $288,000. The inventory at December 31, 2010, was $5..
Mr.Fernandez has applied for a revolving credit line of $6 million to assist in marketing a new product line. The terms of the loan will be as follows: The loan officer estimates that mr.fernandez will use about 60 percent of the credit line on avera..
Premium Pie Company needs to purchase a new baking oven to replace an older oven that requires too much energy to run. The industrial size oven will cost $1,200,000. The oven will be depreciated on a straight-line basis over its six-year useful life...
Your boss asks you to review an option to lease equipment storage facility that the firm needs.
Finding area for all (please show work)
Describe the Net Present Value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV?
Which of the following contradicts the proposition that the stock market is weakly efficient?
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