Ryerson University: Midterm Exam

1969 Words Aug 17th, 2013 8 Pages
Ryerson University

CFIN 401 Section 610
Midterm Exam Version A
Fall 2010
There are 2.0 hours in this exam.

Student Name ____________________________ (Please Print)

Student Number _________________________________

Notes: 1. This is a closed book exam. You may only have pens, pencils , a calculator and one cheat sheet double sided on 8 ½ by 11 paper at your desk. 2. Please fill out the scanner sheet as you go along in the exam. You will not be given extra time at the end of the exam to fill it out. 3. Select the best possible answer for each multiple-choice question 4. Each of the 40 MC questions is worth 1
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He can get the funds for the lease, by borrowing at 8% from the schools line of credit. The grader has no salvage value and fits into the 25% CCA bracket. The tax rate is 33%. What is the NAL?
a. $2,898.4
b. $3,164.5
c. $3,152.29
d. $3,554.3
e. $3,841.2

Use the following information for questions 13-16. You are looking at purchasing a widget producing machine that will cost $11 million which will be salvageable in 9 years for $3 million. The machine will increase revenues by $7.5 million per year and will fall into the 30% CCA bracket. You can lease the machine for $2.75 million per year. Your pre-tax cost of debt is 8.5%. Your corporate tax rate is 35%.

13. What is the present value of the CCA tax shield?
a. $1,725,455
b. $1,989,546
c. $2,102,366
d. $2,442,394
e. $2,619,634

14. What is the NPV of the purchase?
a. $25, 421,228
b. $27,323,257
c. $28,541,725
d. $28,652,337
e. $28,987,251

15. What is the net advantage to leasing (NAL)?
a. -$7,241,582.43
b. -$6,975,354.39
d. -$6,254,308.20
e. -$6,105,882.09

16. What would the pre-tax lease payment have to be for you to be indifferent between leasing or buying?
a. $842,665.04
b. $891,268.83
c. $927,654.33
d. $1,371,182.05
e. $1,582,545.21

17. You are looking buying a nuclear reactor which has a fair market value of $13,754,655. Alternately, you can lease it for the next ten years. Your after tax cost of debt is 7.5%. Your tax rate

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