in a private placement.( c) Private placements are convenient for issuers, but the convenience is offset by higher flotation costs.( d) The SEC requires that all private placements be handled by a registered investment banker.( e) Private placements can generally bring in funds faster than is the case with public offerings.( Points: 20)
Question 3.3.( TCO E) Buster’ s Beverages is negotiating a lease on a new piece of equipment that would cost $ 100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $ 30,000. If the borrow and purchase option is used, the cash flows would be the following:( Year 1)-2,400;( Year 2)-3,800;( Year 3)-1,400;( Year 4)- 79,600; all of these cash outflows would be at the beginning of the respective years. Alternatively, the firm could lease the equipment for 3 years, with annual lease payments of $ 29,000 per year, payable at the beginning of each year. The firm is in the 20 % tax bracket. If it borrows and purchases, it could obtain a 3-year simple interest loan, to purchase the equipment at a before-tax interest rate of 10 %. If there is a positive net advantage to leasing, the firm will lease the equipment. Otherwise, it will buy it. What is the NAL?( a) $ 5,736( b) $ 6,023( c) $ 6,324( d) $ 6,640( e) $ 6,972( Points: 20)
Question 4.4.( TCO I) Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U. S. dollars. If purchasing power parity( PPP) holds, what is the price of hockey skates in the United States?( a) $ 14.79( b) $ 63.00( c) $ 74.55( d) $ 85.88( e) $ 147.88( Points: 20)
Page 2 Question 1.1.( TCO C) Dentaltech Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be?
EBIT $ 2,000,000 Capital budget $ 850,000 Interest rate 10 % % Debt 40 % Debt outstanding $ 5,000,000