B Corporation is considering a copy machine that can be leased for $12,000 a yea

Question

B Corporation is considering a copy machine that can be leased for $12,000 a year for 7 years. The company's marginal tax rate is 29 percent and the yield to maturity on the company's debt is 6.9 percent. Compute the cost to lease if lease payments and associated tax savings are at the

a. beginning of each year.

b. end of each year.

You want a new automobile for personal use. Neither depreciation nor interest payments will be tax deductible. You can buy the automobile with a $2,000 down payment and a 9 percent, forty-eight month loan. The monthly payments will be $605. Alternately, you can lease the automobile with; a $2000 NON refundable deposit, a $1500 refundable security deposit and lease payments of $517 at the beginning of each month for 48 months. Using a 9 percent annual required return to evaluate the salvage value, what must the car be worth at the end of 48 months for the purchase to be more attractive than the lease? What is the indifference point? Hint-- You will need to find the cost of own and the cost to lease then you will need to run a goal-seek or manually change the foregone salvage value to find the foregone salvage value that sets the cost to lease equal to the cost to own (by changing the salvage value).

(Stock for Stock Merger) A Corporation is considering the acquisition of X Corporation. Each corporation has the following data: Existing Income Number of Shares A Corporation $4,200,000 621,000 X Corporation $2,200,000 365,000 Synergistic additional benefits from the combination are $1,200,000. What is the minimum exchange ratio is necessary to keep the X shareholders whole in terms of earnings per share? What is the maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share? (note you will need to use the formulas in the book to solve this)

Explanation / Answer

Ist Alternative

PV of 48 month loan = 2000+605*PVIFA(9/12,48)

where PVIFA(r,n) = [1-(1+r)^-n]/r

PVIFA(.75,48) = 40.1848

PV = 2000+605*40.1848 = $26,311.804

IInd alternative

PV = 2000+1500+517*PVIFA(9/12,48)-1500/1.09^4-W/1.09^48

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