problem1. Wolfsan Corporation has decided to buy a new machine that costs $4.94 million. The machine will be depreciated on a straight-line method and will be worthless subsequent to four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfsan a four-year loan for $4.94 million. The repayment schedule is four annual principal repayments of $1,235,000 and an interest charge of eleven percent on the outstanding balance of loan at the starting of per year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation provides to lease the same machine to Wolfsan. Lease payments of $1.47 million per year are due at the starting of each of the four years of the lease. Compute the NAL.
problem2. Assume that you are in a 25 percent tax bracket and you have accumulated $100,000 in a tax-deferred account. What will the account be worth in 20 years when the rate of return remains 8 percent during the period?
problem3. When the money is in taxable account instead, what will the account be worth (same situations as before)?
problem4. Bob's Baked Goods Company reported the following income statement for 2009: Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes (30%) 210,000 Net Income $490,000 Earnings per Share $4.90 Bob's sales upcoming year rise by 20%, what is Bob's earnings per share?
problem5. Imagine that Company ABC is considering a project which would cost $100 million today, and offer an estimated $25 million of incremental, net cash flow each year for the upcoming six years.
a. What is the Payback Period for this project?
b. What is the NPV of this project, if the discount rate is 8.6%? Should the firm accept this project?
c. What is the IRR of this project? Should the firm accept this project?