Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,200 desk. Desks last for six years and can be depreciated immediately. Assume that lease rates for old and new desks are the same and that Acme's pretax administrative costs are $320 per desk at the beginning of each year. The cost of capital is 9% and the tax rate is 21%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. Suppose a blue-chip company requests a six-year financial lease for a $4,200 desk. The company has just issued five-year notes at an interest rate of 6% per year. What is the break-even rate in this case? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Break-even rate
Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,200 desk. Desks last for six years and can be depreciated immediately. Assume that lease rates for old and new desks are the same and that Acme's pretax administrative costs are $320 per desk at the beginning of each year. The cost of capital is 9% and the tax rate is 21%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. Suppose a blue-chip company requests a six-year financial lease for a $4,200 desk. The company has just issued five-year notes at an interest rate of 6% per year. What is the break-even rate in this case? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Break-even rate
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,200 desk. Desks last for six years and can
be depreciated immediately. Assume that lease rates for old and new desks are the same and that Acme's pretax administrative costs
are $320 per desk at the beginning of each year. The cost of capital is 9% and the tax rate is 21%. Lease payments are made in
advance, that is, at the start of each year. The inflation rate is zero. Suppose a blue-chip company requests a six-year financial lease for
a $4,200 desk. The company has just issued five-year notes at an interest rate of 6% per year.
What is the break-even rate in this case? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Break-even rate
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