Solutions to Chapter 26 (Leasing)-Brealey Myers Corporate Finance

Even though Mr. Fordham mentions that he in his “Statement of Cost of Goods Manufactured for Year Ended Dec. 31 1956” that he depreciated $24,000 of Plant and Equipment, I decided to change the depreciation schedule so that PP&E would be fully depreciated by the end of the 5 year period. Thus, I used a straight-line depreciation schedule that accumulated $40,000 worth of depreciation per year, which was spread evenly across the 12 months of this Balance Sheet (or $3,333.33 per month).

* If the price was set at $90,000 the new fixed cost percent would be 23% as that is the closest to $90,000 at $89,997

When we consider the laminate technology, we have to add $2.25M to the CAPX for first year and add $225,000 to depreciation per annum from the second year to the last year. Moreover, we assume the

* m. From point 2, we’ve seen than securing the lease would allow the expected value to increase by 3.1725 million. This is therefore the maximum value we’re ready to pay based solely on the main expected value. Nevertheless, if the risk appetite is lower, we could calculate a value that ensures none of the options to have negative return (see tree in appendix 5). This value is equal to 1.3 million.

Depreciation Schedule Year 0 1 2 3 4 5 6 7 8 9 10 Building 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 Equip 142857.1429 142857.1 142857.1 142857.1 142857.1 142857.1 142857.1 0 0 0 Dep Exp 152857.1429 152857.1 152857.1 152857.1 152857.1 152857.1 152857.1 10000 10000 10000 Tax Credit 42800 42800 42800 42800 42800 42800 42800 2800 2800 2800

1. A condo in Orange Beach, Alabama, listed for $1.4 million with 20% down and financing at 5% for 30 years. What would the monthly payment be?

| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)

The break-even point for place mats is $50,000.00. This is found by the selling price per unit is $12.00. The variable price per unit of place mats is $3.60. $12.00 minus $3.60 equals $8.40. You then divide

Monthly 50% Monthly Rooms $2,956,500 $2,217,375 $1,478,250 Leases $180,000 $135,000 $90,000 TOTAL REVENUE $3,136,500 $2,352,375 $1,568,250 Expences TOTAL VARIABLE COSTS $454,000 $340,500 $227,000 TOTAL FIXED COSTS $1,403,000 $1,403,001 $1,403,002 TOTAL EXPENSE BEFORE IT $1,857,000 $1,743,501 $1,630,002 EBIT

8. If you want to purchase a home. You have $15,000 to put down. All you can afford is $1,500.00 per month and you do not want to finance for more than 15 years @ 6% interest, (your taxes will be $85.00 per month and insurance $200.00 a month), what is the amount you can pay for your home? (Show all your work)

After the calculations you end up coming out with a rate of 14.87%. The third and final part of question three asks what rate you will need if the interest is compounded semiannually. All you have to do is double the amount of terms and you will come out with a lower number of 7.177%. Since the interest is compounded semiannually that means that you will need to times that number by two and you come out with your final number of 14.35%.

Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)

5.000,00 $ 7.500 151.250 20 35.000,00 $ 12.500 321.250 26 $ 58,20 $ 110.000,00 4.000 333.500 83 115,38

Types of expense |1 |2 |3 |4 |5 |Total | | | | | | | | | |Gas |$3,600.00 |$3,600.00 |$3,600.00 |$3,600.00 |$3,600.00 |$18,000.00 | |Repairs and Maintenance |$800.00 |$928.00 |$1,048.00 |$1,160.00 |$1,264.00 |$5,200.00 | |Tires | |$760.00 |$760.00 |$760.00 |$760.00 |$3,040.00 | |Insurance |$2,400.00 |$2,400.00 |$2,400.00 |$2,400.00 |$2,400.00 |$12,000.00 | |Registration and taxes |$848.00 |$720.00 |$600.00 |$488.00 |$384.00 |$3,040.00 | |Depreciation |$9,720.00 |$5,832.00 |$3,500.00 |$2,100.00 |$1,348.00 |$22,500.00 | |Purchase

Springfield Express has experienced an increase in variable cost per passenger to $85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000?