1. Your company is considering the purchase of a fleet of cars for $200,000. It can borrow at 9%. The cars will be used for four years. At the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 40% and the cars belong in CCA class 10 (a 30% class), what is the net advantage to leasing?
a. $15,363
b. $5,399
c. $11,742
d. $7,771
e. $6,594
2. Al's Audio has a cost of debt of 5 percent, a cost of equity of 11 percent, and a cost of preferred stock of 8 percent. The weight for debt is 0.13, the weight for preferred shares is 0.34, and the weight for common stock is 0.53. The company's tax rate is 34 percent. What is the weighted average cost of capital for Al's Audio Shop?
a. 9.15 percent
b. 6.54 percent
c. 6.14 percent
d. 9.45 percent
e. 8.98 percent