V Enterprises is considering whether to lease or buy some special manufacturing equipment to be placed on a new production line. The net cash flows associated with owning the equipment are as follows. The initial purchase price is $1,000,000; the net cash inflows (after tax considerations) in Years 1 through 5 are: Year 1 = $104,000; Year 2 = $152,000; Year 3 = $100,000; Year 4 = $72,000; Year 5 = $128,000. The lease agreement calls for five beginning-of-year payments. The net cash outflow of each payment (after tax considerations) is $137,750. Compare the present values of the two alternatives using the relevant after-tax discount rate of 8 percent. What is the net advantage to leasing the equipment?
Motor Homes Inc. (MHI) is presently in a stage of abnormally high growth because of a
surge in the demand for motor homes. The company expects earnings and dividends to
grow at a rate of 20 percent for the next 4 years, after which time there will be no
growth ( g=0) in earnings and dividends. The company’s last dividend was $1.50. MHI’s
beta is 1.6, the return on the market is currently 12.75 percent, and the risk –free rate is
4 percent. What should be the current common stock price?
A stock market analyst has forecasted the following year-end numbers for Raedebe Technology.
Sales:$70 million
EBITDA:$20 million
Depreciation:$ 7 million
Amortization:$ 0
The company’s rate is 40 percent. The company does not expect any changes in its net operating working capital. This year the company’s planned gross capital expenditures will total $12 million.
(Gross capital expenditures represent capital expenditures before deducting depreciation.) What is the company’s forecasted free cash flow for the year?
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