A firm enters into a 10 year equipment lease, with rent paym…
A firm enters into a 10 year equipment lease, with rent payments of $1 million a year due at the end of each year. The lease runs over the entire life of the equipment and the equipment has no residual value at the end of the lease: it’s a financial lease. The firm’s typical borrowing rate for secured debt is 5%. a) The firm has a debt liability equal to $8.45 million b) The firm’s total expense relating to the equipment lease will be interest expense plus straight line depreciation expense on the equipment and in the first year of lease the total expense will exceed $1 millon. c) a) and b) d) none of the above
Read DetailsWhen a US restaurant chain expands internationally, the most…
When a US restaurant chain expands internationally, the most common arrangement is to license the concept with international partners owning all or most of the restaurants and the US firm getting a percentage of sales a) This reflects the fact that US firms often lack expertise and the ability to direct management in foreign countries that may need to make menu adjustments for local customs and may have differing work rules and cultural issues than in the USA. Foreign ownership means those in charge have the proper incentives to juse their local knowledge to achieve success. b) This may reflect that US firms are not as concenred about potential hits to their brand and reputation in the US from low quality foreign units when they relinquish control of foreign operations c) both a) and b) d) none of the above
Read DetailsThe management of a firm seeking to do an acquisition might…
The management of a firm seeking to do an acquisition might want to use stock to pay for shares of an acquisition target firm a) To enable shareholders of the target firm to avoid capital gain taxes today and thereby allow management to negotiate a lower takeover price b) to insure the firm doesn’t wind up with too much debt when the target firm is as large as the acquiring firm c) when the acquiring firm’s management views their own stock as being overvalued d) All the above e) a) and b) f) a) and c) g) b) and c) h) none of the above
Read DetailsOriginal investors in a SPAC (special purpose acquisition co…
Original investors in a SPAC (special purpose acquisition company) are at great risk of losing money since SPAC promoters (managment) can get 20% of the shares of the SPAC if the firm enters into any acquisition and shareholders have to live with the negative wealth consequences of poor acquistion choices designed to get the promoters their shares.
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