1. If actual inflation exceeds expected inflation:

a. actual real yields will be less than expected real yields.

b. actual real yields will be more that expected real yields

c. real yields will be negative.

d. expected real yields will be negative.

e. None of the Above.

Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero over 8 years. The actual pre-tax salvage value is $3,000. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What would the NPV of the lease relative to the purchase be?

-$2,780.42

-$4,064.08

-$3,927.15

$2,318.71

$3,061.26

3. Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What is the NPV of the lease relative to the purchase?

-$2,325

$1,639

-$1,742

-$2,537

-$1,492