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Purchase Price: $15 million Depreciation: 5 year, straight line of the full purchase amount Expected Salvage Value: $4 million Yearly lease payment (made at the beginning of the year): $2.8 million Tax rate: 30% Cost of Equity: 9% Cost of Debt: 4.29% Debt/Equity Ratio: 2:1   What is the after-tax cost of debt? 3% 0% 3% 0%   What is the WACC? 0% 0% 0% 0%   What is the after-tax salvage value? $1.0M $4.0M $1.2M $2.8M

Purchase Price: $15 million Depreciation: 5 year, straight line of the full purchase amount Expected Salvage Value: $4 million Yearly lease payment (made at the beginning of the year): $2.8 million Tax rate: 30% Cost of Equity: 9% Cost of Debt: 4.29% Debt/Equity Ratio: 2:1   What is the after-tax cost of debt? 3% 0% 3% 0%   What is the WACC? 0% 0% 0% 0%   What is the after-tax salvage value? $1.0M $4.0M $1.2M $2.8M

Essentials Of Investments
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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Purchase Price: $15 million

Depreciation: 5 year, straight line of the full purchase amount

Expected Salvage Value: $4 million

Yearly lease payment (made at the beginning of the year): $2.8 million

Tax rate: 30%

Cost of Equity: 9%

Cost of Debt: 4.29%

Debt/Equity Ratio: 2:1

 

  1. What is the after-tax cost of debt?
    1. 3%
    2. 0%
    3. 3%
    4. 0%

 

  1. What is the WACC?
    1. 0%
    2. 0%
    3. 0%
    4. 0%

 

  1. What is the after-tax salvage value?
    1. $1.0M
    2. $4.0M
    3. $1.2M
    4. $2.8M

 

  1. At what rate should the after-tax salvage value be discounted?
    1. 0%
    2. 3%
    3. 0%
    4. 5%

 

  1. At what rate should the depreciation tax shield cash flow be discounted?
    1. 0%
    2. 3%
    3. 0%
    4. 5%

 

  1. What is the PV cost of ownership?
    1. $9.6M
    2. $9.8M
    3. $8.9M
    4. $8.7M

 

  1. What is the PV cost of leasing?
    1. $9.2M
    2. $9.0M
    3. $8.5M
    4. $8.9M

 

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