Finance 401 midterm question
FIN 401-061
RYERSON UNIVERSITY
Midterm Exam – March 4, 2013 – Prof. M. Toffanin
Version A
Time allowed: 2 hours
Aids allowed: Closed book except for an 8 1/2” by 11” crib sheet.
Answer all multiple choice questions on the scan sheet.
All questions are worth 1 mark each. There are 30 multiple choice questions. Good luck!
1. Which version of the exam do you have? This is a free mark – take it. Make sure you answer it correctly, though.
A) Version A
B) Version B
Please use the following information to answer the next THREE questions.
3Dee Building Corp. is trying to decide whether to lease or buy a new 3D printer system for its architectural business. The printer system will give 3Dee a competitive advantage in creating architectural models and will generate an additional $1,000,000 in annual pre-tax revenues. The system costs $8,500,000 and qualifies for a 45% CCA rate. Pre-tax maintenance costs on the printer amount to $15,000 per year. The printer will have a salvage value of $750,000 in 4 years.
3Dee’s tax rate is 35%, and the firm can borrow at 14%. PLease Corp. has offered to lease the
3D printer system to 3Dee for payments of $2,500,000 per year, and these payments also cover the maintenance costs. PLease Corp.'s policy requires that its lessees make payments at the
START of the year.
2. What is the PV of the after-tax lease payments?
A) $2,292,414
B) $5,253,010
C) $5,731,034
D) $7,284,281
E) $8,304,080
3. What is the NAL of the 3D printer from 3Dee’s point of view?
A) -$531,868
B) -$53,844
C) $22,326
D) $53,844
E) $531,868
Page 1 of 8
4. What is the before-tax lease payment that would make 3Dee indifferent between leasing and buying? A) $2,523,428
B) $2,753,125
C) $1,789,531
D) $1,640,267
E) $1,500,000
5. A lease is considered to be a capital lease if which of the following criteria hold:
I. The lease term is for 75% or less of the life of the asset.
II. The lessee can purchase asset at below market price.
RYERSON UNIVERSITY
Midterm Exam – March 4, 2013 – Prof. M. Toffanin
Version A
Time allowed: 2 hours
Aids allowed: Closed book except for an 8 1/2” by 11” crib sheet.
Answer all multiple choice questions on the scan sheet.
All questions are worth 1 mark each. There are 30 multiple choice questions. Good luck!
1. Which version of the exam do you have? This is a free mark – take it. Make sure you answer it correctly, though.
A) Version A
B) Version B
Please use the following information to answer the next THREE questions.
3Dee Building Corp. is trying to decide whether to lease or buy a new 3D printer system for its architectural business. The printer system will give 3Dee a competitive advantage in creating architectural models and will generate an additional $1,000,000 in annual pre-tax revenues. The system costs $8,500,000 and qualifies for a 45% CCA rate. Pre-tax maintenance costs on the printer amount to $15,000 per year. The printer will have a salvage value of $750,000 in 4 years.
3Dee’s tax rate is 35%, and the firm can borrow at 14%. PLease Corp. has offered to lease the
3D printer system to 3Dee for payments of $2,500,000 per year, and these payments also cover the maintenance costs. PLease Corp.'s policy requires that its lessees make payments at the
START of the year.
2. What is the PV of the after-tax lease payments?
A) $2,292,414
B) $5,253,010
C) $5,731,034
D) $7,284,281
E) $8,304,080
3. What is the NAL of the 3D printer from 3Dee’s point of view?
A) -$531,868
B) -$53,844
C) $22,326
D) $53,844
E) $531,868
Page 1 of 8
4. What is the before-tax lease payment that would make 3Dee indifferent between leasing and buying? A) $2,523,428
B) $2,753,125
C) $1,789,531
D) $1,640,267
E) $1,500,000
5. A lease is considered to be a capital lease if which of the following criteria hold:
I. The lease term is for 75% or less of the life of the asset.
II. The lessee can purchase asset at below market price.