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Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price theThe Deluxe Corporation has just signed a 132-month lease on an asset with a 16-year life. The minimum lease payments are $2,1The Pioneer Petroleum Corporation has a bond outstanding with an $50 annual interest payment, a market price of $830, and a m

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Answer #1
Car company
Industry PE ratio 20-(10% of 20)=18
Factor Favourable/unfavourable Addition or deduction
Growth Favourable 0.5
Consistency Favourable 0.5
Debt Favourable 0.5
Turnover Favourable 0.5
management quality Favourable    0.5
Total addition 2.5
Initial PE = Industry PE+ Addition
= 18+2.5
= 20.5
Leasing
a) Lease period % = No.of period of lease/total life
= 132months/(16yrs*12 months)
= 68.75%
b) PV of lease payment = lease payment*PVAF(rate,time)
Rate = 0.1/12=0.0083333 per month (since payments are monthly)
PV of lease payment = 2100*79.88
= $167,733
Present value as a % of fair value = 167733/205000
= $0.8182
or 82.82%
c) yeild = [Coupon+{(redemption price-current price)}/no. of years]/(redemption price+current price)/2
= [50+{(1000-830)/5)}]/(1000+830)/2
= [50+34)]/915
= 84/915
= 0.0918 or 9.18%
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