516 [2.]

Comey Products has decided to acquire some new equipment having a $240,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 9% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question? (Hint: Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.

$______________

516 [4.]

Reynolds Construction (RC) needs a piece of equipment that costs $135,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $50,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes.

• What will RC report as the lease liability at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$_____________

560 [2.]

You establish a straddle on Walmart using September call and put options with a strike price of $88. The call premium is $7.40 and the put premium is $8.15.

b.What will be your profit or loss if Walmart is selling for $94 in September?(Input the amount as positive value. Round your answer to 2 decimal places.)

Loss of $ __________

c.What is the Break-even price for lower bound?(Round your answer to 2 decimal places.)

Break-even price for lower bound _____________

c-2.What is the Break-even price for upper bound?(Round your answer to 2 decimal places.)

Break-even price for upper bound _____________

560 [8.]

The margin requirement on the S&P 500 futures contract is 8%, and the stock index is currently 1,600. Each contract has a multiplier of $50.

c-1.What will be the investor's percentage return based on the amount put up as margin?(Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Percentage return _________%

c-2.What would be the current cash balance in the margin account?

Cash balance __________