Chapter25_xlsSol

# Chapter25_xlsSol - Problems Problem 25-4 Problem 25-8...

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Problems Problem 25-4 Problem 25-8 Problem 25-10

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Problem 25-4 Acme Distribution currently has the following items on its balance sheet: Assets Liabilities Cash 20 Debt 70 Property, Plant, and Equipment 175 Equity 125 Acme Distribution Assets Currently After the lease Liabilities Currently After the lease Cash 20.00 20.00 Debt 70.00 150.00 Property, Plant and Equipment 175.00 255.00 Equity 125.00 125.00 Total 195.00 275.00 Total 195.00 275.00 Debt to equity ratio Before: 56.00% After: 120.00% An operating lease does not affect the balance sheet. How will Acme’s balance sheet change if it enters into an \$80 million capital lease for new warehouses? What will its book debt-equity ratio be? How will Acme’s balance sheet and debtequity ratio change if the lease is an operating lease?
Problem 25-8 Tax rate 35.00% Borrowing Rate 7.00% After tax borrowing Rate 4.55% a. Year 0 1 2 3 4 5 Lease vs. buy Buy 1 Capital Expenditure (4,250,000.00) 2 Depreciation Tax shield 297,500.00 297,500.00 297,500.00 297,500.00 297,500.00 3 Free Cash Flow (Buy) (4,250,000.00) 297,500.00 297,500.00 297,500.00 297,500.00 297,500.00 Lease 4 Lease Payments (975,000.00) (975,000.00) (975,000.00) (975,000.00) (975,000.00) 0.00 5 Income Tax Savings (341,250.00) (341,250.00) (341,250.00) (341,250.00) (341,250.00) 0.00 6 Free Cash Flow (Lease) (633,750.00) (633,750.00) (633,750.00) (633,750.00) (633,750.00) 0.00 FCF Lease - FCF Buy 3,616,250.00 (931,250.00) (931,250.00) (931,250.00) (931,250.00)

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Chapter25_xlsSol - Problems Problem 25-4 Problem 25-8...

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