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Lease versus Buy Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: The machinery falls into the MACRS 3-year class. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance. The firm's tax rate is 35%. The loan would have an interest rate of 15%. (Suppose that only interest payments are made at the end of each year and the whole loan will be paid back at the end of year 4.) The lease terms call for $400,000 payments at the end of each of the next 4 years. Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of $200,000 at the end of the 4th year. MACRS Year Allowance Factor 1 0.3333 2 0.4445 3 0.1481 4 0.0741 What is the NAL of the lease? Round your answer to the nearest dollar.
Calculate the expected return of portfolio
Administrators at Bacon College are debating the construction of a new building to house the School of Business Administration. They have estimated the total amount needed at the time of construction starts in 5 years to be $21,300,000. Find the futu..
A firm has a current capital structure consisting of $500,000 of 14 percent annual interest debt and 80,000 shares of common stock. The firm's tax rate is 40 percent on ordinary income.
A firm plans to purchase a $50,000 asset that will be depreciated straight-line over a 5-year life to a zero salvage value. What is the present value of the resulting benefit from depreciation (the depreciation “tax shield”) if the tax rate is 35% an..
Today's network managers face a number of demanding problems. - Investigate and discuss three major issues.
A stock is expected to pay a dividend of $0.75 the end of the year (that is, D1 = $0.75), and it should continue to grow at a constant rate of 5% a year. If its required return is 12%, what is the stock's expected price 1 year from today?
Suppose a consumer has $1000: If the marginal propensity to save (MPS) is .2, how much will the consumer spend? If the consumer deposits the entire $1000 into a bank and, assuming the reserve requirement rate is 10%, what will be the eventual increas..
Les is concerned that his variable cost per unit projection for a project may not be reliable. Which type of analysis will help him determine the effect that an incorrect variable cost estimate will have on the final outcome of the project?
Bridget Jones has a contract in which she will receive the following payments for the next five years: $23,000, $24,000, $25,000, $26,000, and $27,000. She will then receive an annuity of $29,000 a year from the end of the 6th through the end of the ..
What is the "Cash is King" principle? What does it mean and why do entrepreneurs believe in this mantra? A Portfolio has a required return 12%, the risk-free rate is 5%, and the market required rate of return is 14%. what is the portfolio's beta? Ann..
Plot the current yield curve from the interest rates of U.S. Treasury securities as found in WSJ or IBD, or examine the chart WSJ or IBD provides. Do not show the curve, but do describe and define it (Normal or Inverted). Determine the approximate pe..
IBM has just issued a callable (at par) 5 year, 20% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It has a price of $111 per $100 face value. What is the bond's yiel..
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