EBK FINANCIAL MANAGEMENT: THEORY & PRAC
15th Edition
ISBN: 9781305886902
Author: EHRHARDT
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 19, Problem 3P
a)
Summary Introduction
To determine: The
b)
Summary Introduction
To determine: The balance sheet of Company H after financing if it capitalized the lease.
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The management of ProdPharm.inc has decided to increase the production capacity of its factory by purchasing a new production line. This new acquisition will be financed by bank debt. The company consulted several banks to have the interest rate applied for this type of investment.
Bank (A) charges an annual nominal rate of 12%.
Bank (B) applies a semi-annually capitalized nominal rate of 11.8%.
Bank (C) applies a quarterly capitalized nominal rate of 11.6%.
Bank (D) applies a monthly compounded nominal rate of 11.5%.
What is the rate monthly headcount best for the business? Show all your interest rate equivalence calculations. Keep 6 digits after the decimal point.
Hard Hat Company is in the process of purchasing several large pieces of equipment from Machine Corporation.
Several financing alternatives have been offered by Machine:
1. Pay $1,050,000 in cash immediately.
2. Pay $441,000 immediately and the remainder in 10 annual installments of $92,000, with the first installment due in
one year.
3. Make 10 annual installments of $154,000 with the first payment due immediately.
4. Make one lump-sum payment of $1,710,000 five years from date of purchase.
Required:
Determine the best alternative for Hard Hat, assuming that Hard Hat can borrow funds at a(n) 10% interest rate.
Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1,
PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Option 1
Option 2
Option 3
Option 4
The best alternative for Hard Hat
PV
Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning:1. Pay $1,000,000 in cash immediately.2. Pay $420,000 immediately and the remainder in 10 annual installments of $80,000, with the first installment due in one year.3. Make 10 annual installments of $135,000 with the first payment due immediately.4. Make one lump-sum payment of $1,500,000 five years from date of purchase.Required:Determine the best alternative for Harding, assuming that Harding can borrow funds at an 8% interest rate.
Chapter 19 Solutions
EBK FINANCIAL MANAGEMENT: THEORY & PRAC
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