User Account

All Pages

Salvage value-should the firm buy or lease

Assignment Help Financial Management
Reference no: EM131923834

1. Assuming 0% taxes. Equipment can be leased at $12000 per year (first payment at end of year) for nine years or purchased at a cost of $68000. The company has a weighted average cost of capital of 12%. A bank has indicated that it would be willing to make the loan of $68000 at a cost of 10%. There is no salvage value. Assume a marginal tax rate of 40% and that a loan can be obtained from the bank at a cost of 9%. Should the firm buy or lease? The PV of the depreciation expense is 60% of the original investment. Assume a 5.4% discount rate.

A Lease; PV of Lease option lower than Buy option

B Lease; PV of Buy option lower than Lease option

C Buy; PV of Buy option lower than Lease option

D none of them

E Buy; PV of Lease option lower than Buy option

2. Referring to Q1. If the lease payments start at the beginning of the year, would your recommendation change? How?

A Buy; PV of Buy option lower than Lease option

B Lease; PV of Lease option lower than Buy option

C Lease; PV of Buy option lower than Lease option

D Buy; PV of Lease option lower than Buy option

E none of them

Reference no: EM131923834

Questions Cloud

Proceeds with the recapitalization : What will be the company’s earnings per share, if it proceeds with the recapitalization?
Relationship between the real interest rate and investment : Given the expected relationship between the real interest rate and investment,
What is the long-run real interest rate : You check the website of the Congressional Budget Office and learn that the level of potential output is 2,760. What is the long-run real interest rate?
Impact be on dynamic aggregate demand curve : Suppose there was a wave of household pessimism in the economy. What would the impact be on the dynamic aggregate demand curve?
Salvage value-should the firm buy or lease : There is no salvage value. Assume a marginal tax rate of 40% and that a loan can be obtained from the bank at a cost of 9%. Should the firm buy or lease?
Economy will have steeper aggregate expenditure curve : Which economy will have a steeper aggregate expenditure curve?
Increase the portfolio demand for money : Which of the following factors would increase the portfolio demand for money?
Find the numerical value for equilibrium output : Find the numerical value for equilibrium output, Y, in the short run.
Increase the transactions demand for money : Which of the following factors would increase the transactions demand for money?

Reviews

Write a Review

Financial Management Questions & Answers

  Calculate amount of your monthly payment

Calculate the amount of your monthly payment. Round to the nearest dollar.

  Save money for buy house

A young graduate looks to save money to buy a house 7.00 years from today. How much will his account be worth in 7.00 years?

  Measure of the debt ratio upward or downward

Capital Structure. Here is a simplified balance sheet for Epicure Pizza (figures in $MM) Current assets 80 Fixed assets 125 Total 205 Current Liabilities 60 Long term debt 65 Equity 80 Total 205 Note: There are 16 million shares outstanding. Do you n..

  Calculate the combined transport cost for the alternatives

Jane's Teddy Bears from Manchester are selling stuffed toys all around the world. At the moment, the market in Brazil is expanding and Jane is producing teddy.

  What is the pretax cost of debt and aftertax cost of debt

Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually. Wh..

  Cause trial balance to be out of balance

Which of the following would cause a trial balance to be out of balance?

  What is the equivalent aftertax yield

A taxable corporate issue yields 6.2 percent. For an investor in a 35 percent tax bracket, what is the equivalent aftertax yield?

  Economic conditions will strengthen and government spending

If you expect economic conditions will strengthen and government spending will increase.

  What stock price will you get a margin call

You sell short 200 shares of Doggie Treats Inc. that are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call?

  Just-in-time inventory system is designed to reduce

The just-in-time inventory system is designed to reduce the inventory period. In essence, companies pay their suppliers to carry the inventory for them. Reducing the inventory period reduces the operating cycle and thus the cash cycle. This reduces t..

  Replace existing machine that has zero salvage value

Topsider Inc. is considering the purchase of a new leather-cutting machine to replace an existing machine that has zero salvage value.

  Assets-sales and the debt ratio would not be affected

Last year Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Asset..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd