Reference no: EM131332206
Your company (Acme Iron) is considering leasing a new computer, you and your team need to perform analysis to support the decision making process. The lease lasts for 9 years. The lease calls for 10 payments of $10,000 per year with the first payment occurring immediately. The computer would cost $70,650 to buy and would be straight-line depreciated to a zero salvage over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%.
What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-9?
What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?
What is the NPV of the lease relative to the purchase?
What would the after-tax cash flow in year 9 be if the asset had a residual value of $500 (ignoring any possible risk differences)?
Do you have a recommendation?
Concept Check: Understanding which cash flows are relevant is key to determining best financing methods or project acceptance. It helps to detail all you assumptions within the model since questions may arise years after the initial construction of the model.
Helpful Hint: Creating a time-line with corresponding cash flows is usually helpful. You should also do the NPV calculations showing your formula so if anyone wishes to change the variables they will know how to proceed.
Identify the payoff that each player can guarantee
: Identify the payoff that each player can guarantee for himself in each of the following two-player zero-sum game using mixed strategies and using behavior strategies.
|
Pretax cost of debt
: ABC corp has a target capital structure of 60 percent common stock, 5 percent preferred stock and a 35 percent debt. It's cost of common stock is 10% , the cost of preferred is 5% and the pretax cost of debt is 7%. The relevant tax rate is 30% wha..
|
Prove that if a player in an extensive form game
: Prove that if a player in an extensive-form game has only one information set, then his set of mixed strategies equals his set of behavior strategies.
|
What is the npv of project
: Cortez art gallery is adding to its existing buildings at a cost of $ 2 million. The gallery expects to bring in additional cash flows of $ 520,000, $ 700,000, and $ 1,000,000 over the next three years. Given a required rate of return of 10 percen..
|
What is the after-tax cash flow from leasing relative
: Your company (Acme Iron) is considering leasing a new computer, you and your team need to perform analysis to support the decision making process. The lease lasts for 9 years. The lease calls for 10 payments of $10,000 per year with the first payment..
|
Theoretical perspectives or concepts on development
: Analyze and synthesize at least 2 theoretical perspectives or concepts on development and Make explicit connections between theory-to-practice regarding concepts in development
|
Calculating and understanding a firm optimal
: Calculating and understanding a firm's optimal or sustainable growth rate is critical to the goal of maximizing shareholders' wealth and developing an optimal capital structure.
|
Ratio in the category attempt to measure
: There are basically 5 categories of financial statement analysis that is employed to assess the health of companies related to their financial performance. They are generally classified as liquidity, efficiency, debt, profitability and market-base..
|
Money has a lesser time value
: Money has a lesser time value Select one: a. when rates of return are lower. b. when rates of return are higher. c. when investors are willing to assume greater risks. d. when the future is uncertain.
|