Hi there,

Can you help me,pls?

Thanks so much

1.The Strident Company is attempting to determine whether to lease or purchase a new telephone system. The company is in the 40% tax bracket, and its after-tax cost of debt is currently 4.5%. The terms of the lease and the purchase are as follows:

Lease. Annual beginning-of-year lease payments of $22,000 are required over the 5-year life of the lease. The lessee will exercise its option to purchase the asset for $30,000, to be paid along with the final lease payment.

Purchase. The $100,000 cost of the telephone system can be financed entirely with a 7.5% loan requiring annual end-of-year payments of $24,716 for five years. The company in this case will depreciate the equipment using the straight-line method over five years. The company plans to keep the equipment and use it beyond its 5-year recovery period.

a. Calculate the after-tax cash outflows associated with each alternative.

b. Calculate the present value of each cash outflow stream using the after-tax cost of debt.

c. Which alternative lease or purchase would you recommend? Why?

2. The table below shows the yield spreads on a number of one-year, zero-coupon securities. The treasury yield is 5.2%. What is the price per $100 of the face value of a one-year, zero-coupon corporate bond with a BBB rating? (round off to the nearest cent)

Security: AAA Corporate BBB Corporate B Corporate

Yield spread(basis point): 20 100 170