1. Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?
$50,000
$44,720
$42,000
-$37,650
-$8,000
2. Lexington Electronics stock is selling for $62 a share. One $60 call contract is valued at $252 and one $60 put contract is valued at $74. What is the per share intrinsic value of the call?
a $0
b $2.45
c $2.00
d $0.41
e $1.75
3. You purchased eight Hartford Construction call option contracts with a strike price of $35 when the option was quoted at $2.01. The option expires today when the value of Hartford Construction stock is $38.70. Ignoring trading costs and taxes, what is the total profit or loss on your investment?
a $1,594
b $876
c $1,080
d $1,352
e $3,210