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