Corporate Finance Module 8.docx - Corporate Finance Module...

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Corporate Finance – Module 8 P17-4 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. B. 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?
P17-10 Conversion (or stock) value – what is the conversion or stock value of each of the following convertible bonds? 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.

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