True regarding the recent financial crisis

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Reference no: EM131901474

Which of the following is true regarding the recent financial crisis?

a. FIs’ new policy of “originate to distribute” caused banks to increase their lending standards for issuing new loans.

b. FIs increasingly relied on repos to fund their loans and when the housing market bubble burst, they were unable to use repackaged loans as collateral in the repo market.

c. The recent financial crisis was not a bank run because deposits are Federally insured by the FDIC.

d. The “originate to distribute” model moved loans off of banks’ balance sheets and banks were no longer able to issue new loans.

e. All of the above are not true.

2. Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $35,000. The equipment has a 4-year life. The company expects to sell the equipment at the end of year 4 for $7,000. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment can be leased for $9,000 a year. The firm can borrow money at 9 percent and has a 34 percent tax rate.

What is the incremental annual cash flow for year 4 if the company decides to lease the equipment rather than purchase it?

($6,760)

($14,318)

($11,442)

($10,986)

($5,966)

Please show in excel spreadsheet format

Reference no: EM131901474

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