Finance problem sv111 1) Company, Inc. Company, Inc. is considering acquiring a new piece of equipment The new piece of equipment costs $150. The company can lease or buy. If it leases the lease does not to be capitalized, it will be a 2-year lease, and t

1) Company, Inc. Company, Inc. is considering acquiring a new piece of equipment The new piece of equipment costs $150. The company can lease or buy. If it leases the lease does not to be capitalized, it will be a 2-year lease, and the payment will be $85 at the beginning of each year. If the company buys it can borrow the full $150 at 8% interest on the loan. Assume the tax rate at 40%. Depreciation is $75 per year. No salvage value; equipment is worth nothing after 2 years. 

 

Q:

 

Should Company, Inc. lease or buy the equipment?

 2)

 

       

            

    

 

    

           

  

 

    

  

    

  

 

     

           

 

 

Q:

I-Banks & ACME Inc.
I-Bank specializes in underwriting new issues by small firms.
On a recent offering of ACME Inc., the terms were as follows:
Price to public $5.50 per share
Number of shares 1.75 million
Proceeds  $8,000,000
Out of pocket expenses incurred by I-Bank and related to ACME’s offering were $500,000.
What profit or loss would I-Bank incur if the issue were sold to the public at the following average price?
 

       

           

 

 

 

      

 

 

  

           

Q:

 

       

Barek Company
Barek, whose stock price is now $27.50, needs to raise $27 million in common stock.
Underwriters have informed the firm’s management that they must price the new issue
to the public at $25 per share.
The underwriters’ compensation will be 6% of the issue price, so Barek will net: 25.85
per share.  The firm will also incur expenses in the amount of $200,000.
How many shares must the firm sell to net $21.5 million after underwriting and 
flotation expenses?
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