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?
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
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