A firm can either lease or buy some new equipment. The lease payments would be
$19,700 a year for 4 years. The purchase price is $72,900. The equipment has a 4-year
life after which it is expected to have a resale value of $3,600. The firm uses straight-
line depreciation over the life of the asset, borrows money at 11 percent, and has a 35
percent tax rate. The company does not expect to owe any taxes for at least 4 years
because it has accumulated net operating losses. What is the incremental cash flow for
year 3 if the company decides to lease rather than purchase the equipment?
A. -$29,165
B. -$21,821
C. -$19,700
D. -$18,559
E. -$17,635
Phil is working on a financial plan for the next three years. This time period is referred
to as which one of the following?
A. financial range
B. planning horizon
C. planning agenda
D. short-run
E. current financing period
One year ago, you purchased 200 shares of a stock at a price of $54.18 a share. Today,
you sold those shares for $40.25 a share. During the past year, you received total
dividends of $164 while inflation averaged 4.2 percent. What is your approximate real
rate of return on this investment?
A. -24.20 percent
B. -28.40 percent
C. -20.00 percent