Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 2, Problem 3SQ
(PV) Your company can lease a truck for $10,000 a year (paid at the end of the year) for six years, or it can buy the truck today for $50,000. At the end of the six years the truck will be worthless. If the interest rate is 6%, what is the
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Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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- Suppose you want to purchase a property for $205,000 and you have $30,000 to put down as a down payment. The property has an existing mortgage that can be wrapped. This loan is a fixed-rate mortgage at 7 percent, monthly payments. This loan had an original balance of $150,000 and has 20 years remaining on its original 30-year term. The current market rate for a new fixed-rate loan is 10.50 percent for 20 years. The seller will give you a wrap loan for an amount equal to the purchase price minus the down payment at 8.75 percent, monthly payments. What is the effective equity yield for the wrap lender if the wrap loan is written for a term equal to the remaining term of the existing mortgage and both are held to maturity?arrow_forwardA borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and 1 point and the second is a 95% loan for 25 years at 9.25% interest and 1 point. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money? O 12.01% O 14.34% 13.50% O 13.66%arrow_forward1. Suggest you are going to lease a car with an MSRP of $30 000. The manufacturer has set a residual of 60% for a 3-year lease. The dealer has agreed to a selling price of $28 000, and there's a rebate of $500 from the manufacturer. Also you will have a $1 700 advance payment and the lease carries an interest rate of 9% per year. How much would your monthly pretax lease paymentsbe? Manufacturer's Suggested Retail Price MSRP USD 30,000.00 Negotiated sales price NSP USD 28,000.00 Lease Term LT month 36.00 Residual persentage RP dec. 0.60 Advance payment AP USD 1,700.00 Rebate R USD 500.00 Interest Rate APR % 9.00 Calculate the following 1. Calculation of Depreciation fee: Net capitalized cost NCC USD 25,800.00 Residual Value RV USD 18,000.00 Depreciation over lease term Dt USD 7,800.00 Depreciation charge (monthly) D USD 216.67 2. Calculation of Finance fee (Rent charge): Money factor MF - 0.003750 Finance fee (monthly) F USD 164.25…arrow_forward
- Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years; current loan balance: $400,000; current loan interest: 5.875%; remaining term on current mortgage: 15 years; new loan interest: 3.625%; new loan term: 15 years; cost of refinancing: $6,000. Assume that the opportunity cost is 10%. Should the borrower refinancearrow_forwardYou are thinking about leasing a car. The purchase price of the car is $30,000. The residual value (the amount you could pay to keep the car at the end of the lease) is $15,000 at the end of 36 months. Assume the first lease payment is due one month after you get the car. The interest rate implicit in the lease is 6.00% APR, compounded monthly. What will be your lease payments for a 36-month lease? (Note: Be careful not to round any intermediate steps less than six decimal places.) Your monthly lease payments will be $ (Round to the nearest cent.)arrow_forwardSuppose you take out a 25-year $300,000 mortgage with an APR of 6%. You make payments for 5 years (60 monthly payments) and then consider refinancing the original loan. The new loan would have a term of 15 years, have an APR of 5.6%, and be in the amount of the unpaid balance on the original loan. (The amount you borrow on the new loan would be used to pay off the balance on the original loan) The administrative cost of taking out the second loan would be $1500. Use the information to complete parts (a) through (e) below a. What are the monthly payments on the original loan? (Round to the nearest cent as needed) b. A short calculation shows that the unpaid balance on the original loan after 5 years is $269,796.26, which would become the amount of the second loan. What would the monthly payments be on the second loan? $(Round to the nearest cent as needed.) c. What would be the total amount you would pay if you continued with the original 25-year loan without retrancing? (Round to the…arrow_forward
- Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?arrow_forwardSuppose you take out a $117,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 5%. To keep things simple, we will assume you make payments on the loan annually at the end of each year. a. What is your annual payment on the loan? b. Construct a mortgage amortization. c. What fraction of your initial loan payment is interest? d. What fraction of your initial loan payment is amortization? e. What is the total of the loan amount paid off after 10 years (halfway through the life of the loan)? f. If the inflation rate is 3%, what is the real value of the first (year-end) payment? g. If the inflation rate is 3%, what is the real value of the last (year-end) payment? h. Now assume the inflation rate is 6% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? i-1. Recompute the amortization table. i-2. What is the real value of the first (year-end) payment in this high-inflation scenario? j. What is the real value of the last…arrow_forwardLi Jun can purchase a new car for $20,000. Alternatively, in addition to a down payment of $2,600, Li Jun can make lease payments of $500 at the beginning of each month for three years to lease the car. The car has a residual value of $10,000. Assume that the cost of borrowing is 4.47% compounded monthly. a. Which option is economically better for Li Jun? Buy Now O Lease b. In the lease option, what will be the buyback value of the vehicle at the end of two years? Round to nearest cent. SAVE PROGRESS SUBMIT ASSIGNMENTarrow_forward
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