2024 – 1 Data on Liu Inc for the most recent year are shown below along with

Question 12. 12.

Taylor Textbooks, Inc., buys on terms of 2/15, net 50 days.  It does not take discounts, and it typically pays on time, 50 days after the invoice date.  Net purchases amount to $450,000 per year.  On average, what is the dollar amount ofcostly trade credit (total credit – free credit) the firm receives during the year?  (Assume a 365-day year, and note that purchases are net of discounts.)

(Points : 20)

Question 13. 13.

Stanley Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $6,000,000 bank loan to finance service equipment.  The loan has an interest rate of 10% and would be amortized over 5 years, with 5 end-of-year payments.  Sutton can also lease the equipment for 5 end-of-year payments of $1,790,000 each.  How much larger or smaller is the bank loan payment than the lease payment?  Note: Subtract the loan payment from the lease payment.

(Points : 20)

Question 14. 14.

Waldrop Corporation is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years.  The tools will be obsolete and worthless after 3 years.  The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life.  It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them.  The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year.  The firm’s tax rate is 40%.  Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases.  What is the net advantage to leasing (NAL), in thousands?  (Suggestion: Delete 3 zeros from dollars and work in thousands.)

(Points : 20)

Question 15. 15.

10 years ago, the City of Melrose issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6% of the face amount. New 20-year, 6%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold. What is the net present value of the refunding? Note that cities pay no income taxes, hence taxes are not relevant.

(Points : 20)