EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Chapter 22, Problem 22P
a.
Summary Introduction
To determine: The NPV of purchasing and leasing.
Introduction:
The Net Present Value (NPV) is the distinction between the present value of
b.
Summary Introduction
To determine: The equivalent monthly annual benefit of both opportunities.
c.
Summary Introduction
To determine: Whether purchasing or leasing option should be opt.
Leasing option:
Leasing has option that in five years a five-year-old cab will cost either $10,000 or $16,000 with equal likelihood, will have maintenance costs of $500 per month, and will last three more years.
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You need a particular piece of equipment for your production process. An equipment - leasing company has offered to lease the equipment to you for $ 9 comma 500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 6.7%. what should you do? Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 negative $ 40 comma 800 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 Question content area bottom Part 1 The net present value of the leasing alternative is $ enter your response here. (Round to the nearest dollar.)
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Agata Bertina wants to open a new factory in New Jersey. The company can either purchase or lease the factory. There are three options available for Agata Bertina :
1.
Purchase a factory with a useful life of 10 years today for $700,000 in cash. This factory has no additional space for rent.
2.
Lease a factory with annual lease payments of
$45,000 for 10 years. Payments are made at the beginning of each year.
3.
Purchase a factory with a useful life of 10 years today for
$745,000. In addition, the company can rent some additional space for annual rent of $4,000. Assume
Agata Bertina would receive the rental payments at the end of each year.
Requirement: Interest is compounded annually. Which option should Agata Bertina choose given a 3% interest rate?
First, calculate the present value of each option. (Ignore any depreciation expense for purposes of this problem. Use the present value and future value tables, the formula method, a financial calculator,…
Chapter 22 Solutions
EBK CORPORATE FINANCE
Ch. 22.1 - What is the difference between a real option and a...Ch. 22.1 - Why does a real option add value to an investment...Ch. 22.2 - Prob. 1CCCh. 22.2 - In what circumstances does the real option add...Ch. 22.2 - How do you use a decision tree to make the best...Ch. 22.3 - What is the economic trade-off between investing...Ch. 22.3 - Prob. 2CCCh. 22.3 - Does an option to invest have the same beta as the...Ch. 22.4 - Why can a firm with no ongoing projects, and...Ch. 22.4 - Why is it sometimes optimal to invest in stages?
Ch. 22.4 - How can an abandonment option add value to a...Ch. 22.5 - Prob. 1CCCh. 22.5 - Prob. 2CCCh. 22.6 - Why can staging investment decisions add value?Ch. 22.6 - How can you decide the order of investment in a...Ch. 22.7 - Prob. 1CCCh. 22.7 - Prob. 2CCCh. 22 - Your company is planning on opening an office in...Ch. 22 - You are trying to decide whether to make an...Ch. 22 - Prob. 4PCh. 22 - Prob. 5PCh. 22 - You are a financial analyst at Global Conglomerate...Ch. 22 - Prob. 7PCh. 22 - Prob. 8PCh. 22 - Consider again the electric car dealership in...Ch. 22 - Prob. 12PCh. 22 - Prob. 13PCh. 22 - You are an analyst working for Goldman Sachs, and...Ch. 22 - You own a small networking startup. You have just...Ch. 22 - An original silver dollar from the late eighteenth...Ch. 22 - What implicit assumption is made when managers use...Ch. 22 - Prob. 22PCh. 22 - Genenco is developing a new drug that will slow...Ch. 22 - Prob. 24PCh. 22 - Your firm is thinking of expanding. If you invest...Ch. 22 - Prob. 26PCh. 22 - Assume that the project in Example 22.5 pays an...
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