Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over six years using the straight- line method. The new cars are expected to generate $195,000 per year in earnings before taxes and depreciation for six years. The company is entirely financed by equity and has a 23 percent tax rate. The required return on the company's unlevered equity is 12 percent and the new fleet will not change the risk of the company. The risk-free rate is 5 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $700,000. Additionally, assume the company can issue $520,000 of six-year debt to finance the project at the risk-free rate of 5 percent. All principal will be repaid in one balloon payment at the end of the sixth year. What is the APV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Maximum price b. APV
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- Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over six years using the straight-line method. The new cars are expected to generate $195,000 per year in earnings before taxes and depreciation for six years. The company is entirely financed by equity and has a 23 percent tax rate. The required return on the company’s unlevered equity is 13 percent and the new fleet will not change the risk of the company. The risk-free rate is 6 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $675,000. Additionally, assume the company can issue $470,000 of six-year debt to finance the project at the risk-free rate of 6 percent. All principal will…Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight- line method. The new cars are expected to generate $210,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 22 percent tax rate. The required return on the company's unlevered equity is 11 percent and the new fleet will not change the risk of the company. The risk-free rate is 4 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $665,000. Additionally, assume the company can issue $450,000 of five-year debt to finance the project at the risk-free rate of 4 percent. All principal will be repaid…Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over four years using the straight-line method. The new cars are expected to generate $245,000 per year in earnings before taxes and depreciation for four years. The company is entirely financed by equity and has a 24 percent tax rate. The required return on the company’s unlevered equity is 14 percent and the new fleet will not change the risk of the company. The risk-free rate is 7 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $615,000. Additionally, assume the company can issue $350,000 of four-year debt to finance the project at the risk-free rate of 7 percent. All principal…
- White Corporation has decided to purchase a new machine that costs $3.2 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35%. The Black Bank has offered White a 4-year loan for $3.2 million. The repayment schedule is four yearly principal repayments of $800,000 and an interest charge of 9% on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Grey Leasing Corporation offers to lease the same machine to White. Lease payments of $950,000 per year are due at the beginning of each of the four years of the lease. a. Should White lease the machine or buy it with bank financing? b. What is the annual lease payment that will make White indifferent to whether it leases the machine or purchases it?Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $140,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 40 percent tax rate. The required return on the company's unlevered equity is 12 percent, and the new fleet will not change the risk of the company. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Maximum price b. Suppose the company can purchase the fleet of cars for $360,000. Additionally, assume the company can issue $200,000 of five-year, 8 percent debt to finance the project. All principal will be repaid in one balloon payment at…NEED BOTH PARTS... Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $135,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 35 percent tax rate. The required return on the company’s unlevered equity is 14 percent, and the new fleet will not change the risk of the company. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? b. Suppose the company can purchase the fleet of cars for $305,000. Additionally, assume the company can issue $195,000 of five-year, 7 percent debt to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the APV of the project?
- Valles Galactic Industries recently bought a new plant for $27,000,000. The entire plant may be depreciated under the 7-year MACRS category and will be in-business for 8 years. VGI anticipates revenue of $8,000,000 a year in year 1 growing by $2,000,000 per year each year thereafter. VGI pays taxes at a rate of 12%. What is their after-tax rate of return on their investment?Wolfson Corporation has decided to purchase a new machine that costs $2.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four- year loan for $2.1 million. The repayment schedule is four yearly principal repayments of $525,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $640,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the annual lease payment that will…Wolfson Corporation has decided to purchase a new machine that costs $5.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 per cent. The Sur Bank has offered Wolfson a four-year loan for $5.1 million. The repayment schedule is four-yearly principal repayments of $1,275,000 and an interest charge of 9 per cent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1.5 million per year are due at the beginning of each of the four years of the lease. a) Should Wolfson lease the machine of buying it with bank financing? b) What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it?
- Wolfson Corporation has decided to purchase a new machine that costs $3.6 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four-year loan for $3.6 million. The repayment schedule is four yearly principal repayments of $900,000 and an interest charge of 7 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1,020,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the maximum annual lease…Wolfson Corporation has decided to purchase a new machine that costs $4 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four-year loan for $4 million. The repayment schedule is four yearly principal repayments of $1,000,000 and an interest charge of 8 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1,150,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the maximum annual lease Wolfson…Wolfson Corporation has decided to purchase a new machine that costs $3 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 21 percent. A bank has offered the firm a four-year loan for $3 million. The repayment schedule is four yearly principal repayments of $750,000 and an interest charge of 10 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. A leasing corporation offers to lease the same machine to Wolfson. Lease payment s of $850,000 per year are due at the beginning of each of the four years of the lease. What would be the net advantage of leasing the machine?