1. You need a copy machine for your office. You can buy your own machine for $15,000 today and pay $200 per month (starting next month) for 60 months for maintenance OR you can lease a copy machine for $450 per month (starting next month) for 60 months and have no maintenance costs. If your investments earn 4% APR (compounded monthly), which alternative is cheaper in present value terms and by how much?
Leasing is cheaper in PV terms by $1,425
No correct answer is given
Leasing is cheaper by $2,825
Buying your own is cheaper by $2,825
Buying your own is cheaper by $1,425
2. The tax system in place in the UNited States today favors one type of financing over the other. Which type of financing and why?
a. Equity financing because dividends only have to be paid if teh profits are available to pay them.
b. Equity financing because preferred sock dividends are tax deductible.
c. Debt finacning because interest is tax deductible.
d. Debt financing because the tax alws keep itnerest rates lower than returns on equity.