Finance problem sv111 1) Company, Inc. Company, Inc. is considering acquiring a new piece of equipment The new piece of equipment costs $150. The company can lease or buy. If it leases the lease does not to be capitalized, it will be a 2-year lease, and t

1) Company, Inc. Company, Inc. is considering acquiring a new piece of equipment The new piece of equipment costs $150. The company can lease or buy. If it leases the lease does not to be capitalized, it will be a 2-year lease, and the payment will be $85 at the beginning of each year. If the company buys it can borrow the full $150 at 8% interest on the loan. Assume the tax rate at 40%. Depreciation is $75 per year. No salvage value; equipment is worth nothing after 2 years.

Should Company, Inc. lease or buy the equipment?

	I-Banks & ACME Inc.

	I-Bank specializes in underwriting new issues by small firms.
	On a recent offering of ACME Inc., the terms were as follows:

		Price to public	$5.50	per share
		Number of shares	1.75	million
		Proceeds	$8,000,000

	Out of pocket expenses incurred by I-Bank and related to ACME's offering were $500,000.
Q:	What profit or loss would I-Bank incur if the issue were sold to the public at the following average price?

	Barek Company

	Barek, whose stock price is now $27.50, needs to raise $27 million in common stock.
	Underwriters have informed the firm's management that they must price the new issue
	to the public at $25 per share.
	The underwriters' compensation will be 6% of the issue price, so Barek will net:	25.85
	per share. The firm will also incur expenses in the amount of $200,000.

Q:	How many shares must the firm sell to net $21.5 million after underwriting and
	flotation expenses?

13 years ago

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