
(1)
Case Summary:
LS Inc has to acquire new market data and quotation system for its new home office. The system may display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment they can borrow a loan at a interest rate of 10%. Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and for consolidated ;leasing it will cost for $260,000 which include maintenance cost. Federal plus state tax is 25%.
To calculate:
The present value for owning equipment
(2)
To calculate:
The discounting factor for the cash flows if asset is purchased.

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Chapter 19 Solutions
Financial Management: Theory & Practice
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- The risk that arises due to use of debt by the firm causing variability of return for creditors and shareholders is: a.Liquidity Risk b.Call Risk c.Default Risk d.Financial Riskarrow_forward47. The value of holding period return is always show: a.Greater than 0 b.Less than 0 c.Negative d.Equal to 0arrow_forwardCurrent yield is equal to What? a.Market yield b.Any of these c.Income yield d.Running Yieldarrow_forward
- Explain. The financial activities which are performed regularly are known as: a.Recurring Finance b.None of these c.Non-recurring finance functions d.Both a and barrow_forwardThe risk in terms of variability in security’s total return due to some exogenous factors is known as: a.systematic risk b.Unsystematic risk c.None of these d.Non diversifiable riskarrow_forwardThe Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $3 million in annual pretax cost savings. The system costs $8.9 million and will be depreciated straight-line to zero over five years. Wildcat's tax rate is 21 percent, and the firm can borrow at 7 percent. Lambert Leasing Company is willing to lease the equipment to Wildcat. Lambert's policy is to require its lessees to make payments at the start of the year. Suppose it is estimated that the equipment will I have an aftertax residual value of $900,000 at the end of the lease. What is the maximum lease payment acceptable to Wildcat? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Maximum lease paymentarrow_forward
- Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT

