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Wolfson Corporation has decided to purchase a new machine that costs $2.8 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $2.8 million. The repayment schedule in four yearly princpile repayments of $700,000 and an interest charge of 9 percent on the outstanding balance of the loan at the begining of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson Lease payments of $830,000 per year are due at the beginning of each of the four years of the lease. A. Should Wolfson lease the machine or buy it with the bank financing? B. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it?
Suppose that the recovery rate is 30% and the default probabilities each year conditional on no earlier default is 3%. Estimate the credit default swap spread. Assume payments are made annually.
The Timerlake-Jackson Wardrob Co. has 11.7% coupon bond on the market with 11 years left to maturity. The bonds make annual payments and have a par value of $1000. If the bonds currently sell for $1,153.60 what is the YTM?
You are planning to make annual deposits of $5,850 into a retirement account that pays 8 percent interest compounded monthly. How large will your account balance be in 25 years? What is the Future Value?
An increase in share price following an increase in dividends is logical if the:
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only individual voting for you. If Schenkel has 410,000 shares..
You’re prepared to make monthly payments of $250, beginning at the end of this month, into an account that pays 6.6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $16,000?
You have just taken out a $22,000 car loan with a 6% APR, compounded monthly. The loan is for five years. When you make your first payment in one month, how much of the payment will go toward the principal of the loan and how much will go toward inte..
Do you think the philosophers would agree with the current structure of the American government? Why or why not?
You own a stock portfolio invested 30 percent in Stock Q, 25 percent in Stock R, 30 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are .91, 1.24, 1.08, and 1.26, respectively. What is the portfolio beta? (Do not round ..
Luke Athletics Inc. has purchased a $200,000 machine to produce tennis balls. The machine will be fully depreciated by the straight-line method for its economic life of five years and will be worthless after its life. What is the present value of the..
Middlefield Motors is evaluating a project that would cost 5,900 dollars today. The project is expected to have the following other cash flows: 2,280 dollars in 1 year, -2,250 dollars in 3 years, and 8,120 dollars in 4 years. The cost of capital of t..
Share price is $40.00, expected dividend is $4.50 one year from now, growing thereafter at a rate of 3% per year in perpetuity. What is the return on equity? Expected dividend is $7.50 one year from now, dividend yield is 8%, return on equity is 14%...
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