Question : Bavarian Brew Lease Bavarian Brew wants to lease a new bottling : 1325744

 

 

Bavarian Brew Lease

Bavarian Brew wants to lease a new bottling machine. The company obtains a 10 year lease requiring annual payments of $15,000 at the beginning of the year. The firm is expected to exercise its option to purchase the machine at the termination of the lease for $10,000 at the end of year 10. The company is in the 35% tax bracket.

 

46.What is the annual after tax cash flow for Bavarian Brew from the lease?

a.$15,000

b.$9,750

c.$5,250

d.$12,550

 

 

 

47.Bavarian Brew has also the option to purchase the machine. If the present value of the cash flows associated with the purchase is $78,000, what is the net present value of the lease option? Assume that the company’s cost of debt is 7%.

a.$8,870

b.-$8,870

c.$7,950

d.-$7,950

 

 

 

48.If Bavarian Brew capitalizes the lease, what would be the value of the corresponding asset on the company’s balance sheet?

a.$80,461

b.$76,960

c.$72,580

d.$83,890

 

 

 

49.You are contemplating leasing a new car. The monthly lease payments (to be made at the end of each months) are $299 for 36 months. At the end of the lease you have the option of purchasing the car for $17,800. If you could buy the car today for $22,500, what is the implicit interest on the lease?

a.9.942%

b..8285%

c.12.345%

d.7.852%

 

 

 

50.You are contemplating leasing a new car. The monthly lease payments (to be made at the end of each months) are for 36 months. At the end of the lease you have the option of purchasing the car for $17,800. If you could finance the car at 5.9% for the same period, what is the most that you should be willing to pay in monthly lease payments if the sticker price of the car is $25,800?

a.$331

b.$299

c.$413

d.$199

 

 

 

 

51.The vast majority of external capital raised by companies each year is

a.common stock.

b.preferred stock.

c.short-term debt.

d.long-term debt.

 

 

 

52.Accountants classify debt as long-term if

a.the debt is financing a long-term asset.

b.the debt matures in more than one year.

c.the debt matures in more than 6 months.

d.it is interest bearing.

 

 

 

53.Private debt can take the form of

a.a private debt agreement arranged between corporate borrowers and financial institutions.

b.an unregistered security offering sold directly to accredited investors.

c.both a and b.

d.none of the above

 

 

 

54.A clause in a borrowing agreement that requires the firm to maintain a given level of debt- equity is

a.a negative covenant.

b.a positive covenant.

c.an active covenant.

d.none of the above

 

 

 

55.Which of the following would generally be assumed to increase the cost of debt for a firm?

a.issuing bonds that have a longer-maturity than usual

b.having a bond issue that is much larger than that of similar sized firms in the same industry

c.having a bond issue that is convertible into commons stock

d.both a and b

 

 

 

 

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