524 Part Five Payout Policy and Capital Structurebre44380_ch19_491-524.indd 524 09/30/15 12:07 PM
QUESTIONS- The U.S. government has settled a dispute with your company for $16 million. The govern-
ment is committed to pay this amount in exactly 12 months. However, your company will
have to pay tax on the award at a marginal tax rate of 35%. What is the award worth? The
one-year Treasury rate is 5.5%. - You are considering a five-year lease of office space for R&D personnel. Once signed, the
lease cannot be canceled. It would commit your firm to six annual $100,000 payments, with
the first payment due immediately. What is the present value of the lease if your company’s
borrowing rate is 9% and its tax rate is 35%? The lease payments would be tax-deductible.