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(4) A firm can issue 20-year public debt at par wi...

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(4) A firm can issue 20-year public debt at par with a 6% coupon in the domestic market. It can also issue 10% Eurobonds. Calculate APY for each alternative. Which offers the lower borrowing cost? (5) ABC is considering leasing a computer system that costs $1 million dollars new. The lease requires annual payment of $150,000 in arrears for 7 years. ABC?s tax rate is 40%. If it purchased the computer system, it could depreciate it to its residual value over 7 years. ABC?s cost of debt and WACC are 5% and 10% respectively. a. Calculate the NAL assuming a ZERO residual value. Should ABC lease? b. Calculate the NAL assuming a $50,000 residual value. Should ABC lease? (6) ABC is considering whether to lease a delivery truck. The cost of the truck is $20,000. ABC has proposed a 5-year lease that calls for annual payments of $6500 in advance. ABC?s tax rate is 40%. ABC could depreciate the truck to $5000 at the end of 5 years on a straight-line basis and claim a depreciation deduction. ABC?s cost of debt and WACC are 5% and 10% respectively. a. Calculate NAL. Should ABC lease the truck? b. Suppose ABC does not pay taxes. Calculate NAL. Should ABC lease the truck?

 

Paper#8710 | Written in 18-Jul-2015

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