The machine will be depreciated under macrs using a 5

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Unformatted text preview: -year payments of $23,302. The machine will be depreciated under MACRS using a 5-year recovery period. (See Table 3.2 on page 100 for the applicable depreciation percentages.) The firm will pay $2,000 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The firm plans to keep the equipment and use it beyond its 5-year recovery period. a. Determine the after-tax cash outflows of Northwest Lumber under each alternative. b. Find the present value of each after-tax cash outflow stream, using the aftertax cost of debt. c. Which alternative, lease or purchase, would you recommend? Why? CHAPTER 16 LG2 16–6 Hybrid and Derivative Securities 703 Capitalized lease values Given the lease payments, terms remaining until the leases expire, and discount rates shown in the following table, calculate the capitalized value of each lease, assuming that lease payments are made annually at the end of each year. Lease Lease payment Remaining term Discount rate A $ 40,000 12 years 10% B 120,000 8 12 C 9,000 18 14 D 16,000 3 9 E 47,000 20 11 LG3 16–7 Conversion price Calculate the conversion price for each of the following convertible bonds: a....
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