E17-1 N and M Corp. is considering leasing a new machine for $35,000 per year. The lease arrangement calls for a 5-year lease with an option to purchase the machine at the end of the lease for $5,500. The firm is in the 40% tax bracket. What is the present value of the lease outflows, including the purchase option, if lease payments are made at the end of each year and if the after-tax cost of debt is 6%?

E17-2 During the past 2 years Meacham Industries issued three separate convertible bonds. For each of them, calculate the conversion price:

a. A $1,500-par-value bond that is convertible into 10 shares of common stock.

b. A $3,000-par-value bond that is convertible into 25 shares of common stock.

c. A $4,500-par-value bond that is convertible into 60 shares of common stock.

E17-3 Newcomb Company has a bond outstanding with a $1,800 par value and convertible at $60 per share. What is the bond's conversion ration? If the underlying stock currently trades at $55 per share, what is the bond's conversion value? Would it be advisable for a bondholder to exercise the conversion option?

E17-4. Crystal Cafes recently sold a $2,400-par-value, 15-year convertible bond with an 10% coupon interest rate. The interest payments will be paid annually at the end of each year and the principal will be repaid at maturity. A similar bond without a conversion feature would have sold with a 9% coupon interest rate. What is the minimum price that the Crystal Cafes' convertible bond should sell for?

E17-5 A 6-month call option on 100 shares of SRS Corp. stock is selling for $500. The strike price for the option is $40. The stock is currently selling at $38 per share. Ignoring brokerage fees, what price must the stock achieve just to cover the expense of the option? If the stock price rises to $48, what will the net profit on the option contract be?