Problem:
1) Lease or Buy. Your company wants to purchase a new network file server for its wide-area computer network. The server costs $75,000. It will be completely obsolete in three years. Your options are to borrow the money at 10 percent or to lease the machine. If you lease, the payments will be $27,000 per year, payable at the end of each of the next three years. If you buy the server, you can depreciate it straight-line to zero over three years. The tax is 34 percent. Should you lease or buy?
2) Financing and Capital Structure: Construct a project analysis under conditions of uncertainty; construct a lease vs buy analysis. Prepare an EBIT/EPS analysis.
3) Examine how firms raise capital and the roles of intermediaries.