W06 Solution

W06 Solution - 1FINANCE 401 RYERSON UNIVERSITY Final Exam...

This preview shows pages 1–3. Sign up to view the full content.

1 FINANCE 401 RYERSON UNIVERSITY Final Exam – Alan Kaplan - April 24, 2006 - Solution Name:______________________________ Student #:___________________________ Time allowed: 3 hours Aids allowed: None except for an 8’1/2” by 11’ double sided cheat sheet and a calculator The exam is out of 66. Each multiple choice question is worth 1 marks. There are 40 multiple choice questions. The remaining non-multiple choice questions are worth 26 marks. Answer all multiple choice questions on the marksense sheet. Answer all non-multiple choice questions in the space provided. Print or write VERY NEATLY , or your answers won’t get marked. 1. Starry Corp. currently makes before-tax lease payments of \$35,000 per year for a widjit maker. The NAL for the widjit maker is +\$15,000. The firm’s tax rate is 40%. Which of the following statements is true regarding the Break-even after-tax lease payment? a) It is greater than \$21,000 per year b) It is less than \$21,000 per year c) It is less than \$14,000 per year d) Both of b) and c) e) None of the above Since the before-tax lease payment was \$35,000, the after-tax lease payment was (35K*.6= \$21,000). At this lease payment, the NAL was positive. The break-even lease payment would occur at a higher figure than this. 2. Hamilton Inc. is considering a leasing decision. The alternative is to borrow money and to buy the machine it needs up front. It has calculated that the break-even before-tax lease payment is \$45,000 per year for the piece of machinery, based on a 5-year life, and a 40% tax rate. Which of the following statements is most likely to be true? a) Hamilton Inc. should be willing to pay more than \$45,000 per year if it needs to to lease the machine b) If Hamilton Inc.’s tax rate increased, it’s after-tax lease payments would increase c) If the lessor has the same corporate tax rate as Hamilton Inc., then it will definitely have the same break-even before-tax lease payment as Hamilton Inc. d) Hamilton Inc. should be willing to pay any amount less than \$27,000 per year after- tax to lease the equipment e) Both c) and d)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
If 45K is the before tax lease payment, then 45*.6 = \$27,000 is the after-tax lease payment. Any amount less than this is acceptable for the firm 3. In class, we talked about the role of the underwriter in the securities issuance process for an IPO. The following is a list of activities that underwriters perform. I suggested in class that while all of these activities were helpful, one was usually more important than the others. Which one did I suggest was more important than the others? a) Help to determine the nature of the offering b) Help to determine the price of the offering c) Help to sell the offering d) Help to determine the timing of the offering e) Help by providing other advice on a number of matters I suggested that the sales function was the most important 4. In class, we talked about the role of the underwriter in the securities issuance process for an IPO. The following is a list of activities that underwriters perform. I suggested in class that
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/26/2011 for the course FIN 401 taught by Professor Stevejoyce during the Fall '08 term at Ryerson.

Page1 / 17

W06 Solution - 1FINANCE 401 RYERSON UNIVERSITY Final Exam...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online