Corporate Finance – Module 8
Lease versus purchase: JLB Corporation is attempting to determine whether to lease or purchase
research equipment. The firm is in 40% tax bracket, and its after-tax cost of debt is currently 8% . The
terms of the lease and of the purchase are as follows:
A. Calculate the after-tax cash outflows associated with each alternative.
Calculate the present value of eof cach cash outflow stream, using the after-tax cost of debt.
C. Which alternative – lease or purchase – would you recommend? Why?
Conversion (or stock) value – what is the conversion or stock value of each of the following
A. A $1,000 par value bond that is convertible into 25 shares of common stock. The common
stock is currently selling for $50 per share.