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A company is looking to add an new machinery. It will cost $5,000,000 if purchased; It would be depreciated straight-line to zero salvage over 5 years. Alternatively, it may be leased for $600,000 per year. The firm’s cost of debt is 6%, and its tax rate is 40%.
Questions:
a) What’s the lease cash flow?
b) What is the net advantage to leasing (NAL) for the following project?
b) What decision should be made?
Suggest the financial ratio that most financial analysts would use to evaluate the financial condition of the company. Provide support for your rationale. Speculate on the organization's ability to meet its financial obligations as they come due. Pro..
We learn from Gorton’s book that banks in August 2007 went right to the Federal Reserve discount window to replace other sources of liquidity that were becoming scarcer. In addition managers of the bank made public announcements that they were using ..
A firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40 percent. The firm has an after tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm's target capital structure is set at a mix of 40 percent d..
What is the potential arbitrage profit from buying a put option on one share of stock?
Hickock Mining is evaluating when to open a gold mine. The mine has 50,400 ounces of gold left that can be mined, and mining operations will produce 6,300 ounces per year. The required return on the gold mine is 12 percent, and it will cost $34.3 mil..
Retirement or Lottery-John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to..
Come and Go Bank offers your firm a discount interest loan at 9 percent for up to $25 million, and in addition requires you to maintain a 5 percent compensating balance against the amount borrowed. What is the effective annual interest rate on this l..
Shylock Corporation JUST PAID a dividend of $9.52. The expected growth rate on dividends is 5 percent. What is the current price of this stock if the required rate of return is 15 percent?
A company has an EPS of $2.00, a cash flow per share of $3.00. and a price/cash flow ratio of 8.0.- What is its P/E ratio?
On Jan. 1, 2000, you purchased a bond that will pay $1,000 on Dec. 31 of each year from 2000 until 2019. It is now Jan. 1, 2015, and you decide that you would like to sell the bond. Assuming that the prevailing annual interest rate on that day for fi..
ABC, Inc. manufactures 500 drones per month. What is the number of orders per year? Compute the average annual ordering cost. Compute the average inventory.
Determine the annual dividend payout ratios and the dividend yield for the four firms in each year.- What do the dividend payout ratios tell you about investment opportunities available to each company?
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