Table: Rounded Depreciation Percentage by Recovery Year Using MACRS for First Four Property Classes

Percentage by recovery year

Recovery year 3 years 5 years 7 years 10 years

1 33% 20% 14% 10%

2 45 32 25 18

3 15 19 18 14

4 7 12 12 12

5 12 9 9

6 5 9 8

7 9 7

8 4 6

9 6

10 6

11 4

Total 100% 100% 100% 100%

a. Determine the after-tax cash outflows of Northwest Lumber under each alternative.

b. Find the present value of each after tax cash outflow stream, using the after-tax cost of debt.

c. Which alternative – lease or purchase – would you recommend? Why?

16-20 Options profit and losses

For each of the 100 share options shown in the following table, use the underlying stock price at expiration and other information to determine the amount of profit or loss an investor would have had, ignoring brokerage fees.

Option Types of options Cost of options Striking price per share Underlying stock price per share at expiration

A Call $200 $50 $55

B Call 350 42 45

C Put 500 60 50

D Put 300 35 40

E Call 450 28 26