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Ajax Leasing Services has been approached by Gamma Tools to provide lease financing for a new automated screw machine. The machine will cost $220,000 and will be leased by Gamma for five years. Lease payments will be made at the beginning of each year. Ajax will depreciate the machine on a straight-line basis of $44,000 per year down to a book salvage value of $0.
Actual salvage value is estimated to be $30,000 at the end of five years. Ajax's marginal tax rate is 40 percent.
Ajax desires to earn a 12 percent after-tax rate of return on this lease. What are the required annual beginning-of-year lease payments?
A bond promises to pay $150 in 12 months. The annual true interest rate is 5% per annum.- What is the bond's price today?
It’s early morning on January 1st, 2014 and Mr. Specter is thinking about investing in Alberta Oil Sands Corp. Alberta Oil Sands Corporation reported earnings per share (EPS) of $2 as of December 31, 2013 but paid no dividends. How much should Mr. Sp..
Diversifying Away Country Risk. Why do you think that an MNC’s strategy of diversifying projects internationally could achieve low exposure to overall country risk?
In a capital budgeting context, explain how a positive NPV is evidence of an “abnormal” rate of return on a project.
Stock valuation with non-constant growth: M&M Co. just paid a dividend of $5.00 per share. The company will increase its dividend by 15 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches t..
Suppose you need $20,000 to buy a new car in 5 years. Assume that you use an account earning 10% per annum. What do you have to deposit today, assuming quarterly compounding
The Duncan Company's stock is currently selling for $15. People generally expect its price to rise to $18 by the end of next year. They also expect that it will pay a dividend of $0.50 per share during the year. What is the expected return on an i..
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Which of the following are argued to be distinctive characteristics of the corporation?
Charlie's Cycles Inc. has $150 million in sales. The company expects that its sales will increase 5% this year. Charlie's CFO uses a simple linear regression to forecast the company's inventory level for a given level of projected sales. What are you..
Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to .4% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by..
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