1) A firm, that has 0 tax rate due to tax loss carry-forwards, is considering a five-year, $6,000,000 bank loan to finance equipment. Loan has the interest rate of 10%, payable monthly, and would be amortized over= 5 years, with five end-of-year principal payments. It can also rent equipment for five end-of-year payments of $1,690,000 each. How much larger are year-one bank payments (principal plus interest) than year-one lease payment?
2) Sunshine electric Inc is about to be obtained by firms management from the firm’s founder for= $15 million in cash. Purchase price will be financed with= $10 million in motes which are repaid in= $2 million increments over next 5 years. At the ending of 5 years period, firm will have no remaining debt. FFCFs are expected to be $3 million a year for next five years. Beginning in year six FFCFs are expected to grow at the rate of 2% per year into indefinite future. If unlevered cost of equity for Dustin is roughly 15% and firms borrowing rate on buyout debt is 10% (before taxes at a rate of 30%), determine your estimate of the value of firm?