We do not use WACC in calculating the NPV of leasing is that:

A. We do not use equity in leasing.

B. Leasing is a financing decision.

C. Leasing changes the capital structure.

D. We dont have enough information to calculate WACC.

Question 27

DIY pays cash dividend of $16.1 per share. The stock price on the ex-dividend date is $151.62. If

the tax rate on dividend incomes is 0.33, what is the stock price on the cum-dividend date?

Question 28

A contract that gives the holder the right to buy a stock at a specific price on a future date is:

A. An American put.

B. An American call.

C. A European put.

D. A European call.

Question 29

Which of the following is true?

A. Stock dividends will not reduce equity value.

B. Stock repurchase will not reduce equity value.

C. Stock repurchase will increase stock price because of higher demand.

D. Cash dividends will not reduce equity value.

Question 30

The current stock price is $105.26. It may increase to $228.91 or decrease to $54.32 in 4

months. The risk-free interest rate is 0.08 per month. If the exercise price of a call option is

$137.90, how much you have to borrow to create a synthetic call?

Question 31

Lessee Inc. can either purchase a machine for $65,000 or lease it from Lessor for $9,100 per

year (paid at the beginning of each year) for 8 years. The machine will have a salvage value of

$5,850 at the end of year 8. The CCA rate is 25% and the machine is the only asset in the asset

class for Lessee. Assume Lessees cost of borrowing is 6% and its tax rate is 20%.

1. What is Lessees NPV of leasing?

2. What is Lessees maximum annual lease payment?

3. Assume that Lessor has many other assets in the asset class with UCC of $8,007.77 at

year 8, tax rate of 40% and cost of borrowing of 8%, find the minimum annual lease

payment required by Lessor.