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Effective Rate of Interest
Find the interest rate (or rates of return) for each of the following situations. Round your answers to two decimal places.
You borrow $750 and promise to pay back $795 at the end of 1 year.
%
You lend $750 and receive a promise to be paid $795 at the end of 1 year.
You borrow $95,000 and promise to pay back $144,317 at the end of 10 years.
You borrow $10,000 and promise to make payments of $3,550 at the end of each year for 3 years.
How is the income statement related to the balance sheet? Explain how the DuPont system of analysis breaks down return on assets and how it breaks down the return on stockholders’ equity. Rapid corporate growth in sales and profits can cause financin..
During the year, the Senbet Discount Tire Company had gross sales of $1.2 million. The firm’s cost of goods sold and selling expenses were $539,000 and $229,000, respectively. The firm also had notes payable of $940,000. These notes carried an intere..
J.B. Corporation is considering the purchase of equipment that has an invoice price of $450,000. The equipment was recommended by a consulting firm that did an analysis for J. B. Corporation. J. B. paid the consulting firm $12,000 for its report. The..
What is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million, if the average interest rate on debt is 8.5% and the marginal tax rate is 35%?
Taxpayer had an insurance policy on Taxpayer’s life on which Taxpayer had paid premiums for ten years. The proceeds of the policy are $200,000 and are to be paid to Sibling on Taxpayer’s death. What are the estate tax consequences if Taxpayer dies t..
Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $380,000 is estimated to result in $145,000 in annual pretax cost savings. The press also requires an initial investment in sp..
Last week, Stuart Company stock was selling at $33 a share when Sam sold 300 shares of the stock short. Today Sam bought 300 shares of the same stock at a price of $35 a share to cover is position. Ignoring trading costs, what is the dollar return on..
At the beginning of each year for 10 years, e4,800 is deposited in a savings account which pays a certain fixed rate of interest per annum. At the time of the last payment, the proceeds of the account are used to purchase a level annuity payable annu..
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 –$ 21,000 –$ 21,000 1 9,100 10,600 2 9,600 8,050 3 9,050 8,950 Calculate the IRR for each project. IRR Project X 7.43 % Project Y 7.36 % What is the crossover ..
Bristol Myers Squibb, an international pharmaceutical company, is initiating a new project for which it requires $2.5 million in debt capital. The current plan is to sell 20-year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on th..
If the total assets of a firm are unaffected by a stock dividend, then:
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $500,000 is estimated to result in $199,000 in annual pretax cost savings.
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