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Geroge Tanner died October 2, 2014, survived by his son Thomas and his daughter Gigi and her two children. George was the sole stockholder of Tanner Inc., a C corporation. Gigi served as president of Tanner from its inception until early January 2015. However, she never has an employment agreement or a noncompete agreement with Tanner. George was not involved with the business; he simply provided the funding. Gigi executed all of Tanners contracts with its customers and was very involved with the business. George's will left half of the Tanner stock to Gigi and the other half to Thomas. In late December 2014, Gigi and Thomas had major disagreements, and soon thereafter Gigi formed a C corporation (GTS, Inc.) to compete with Tanner. Because of the personal relationships Gigi had with Tanners customers, almost all of them broke their contracts with Tanner and began doing business with GTS. Preparation of George;s estate tax return is underway, and one of the the estate's major assets is the Tanner stock. A questions has arisen whether the valuation of the Tanner stock should take into account the value of Gigi's persona goodwill due tot he absence of an employment agreement or a noncompete agreement. If so, the value of her personal goodwill would adversely affect the value otherwise determined for the stock. Your supervisor requested that you research the issue and present your results in a memo so she can discuss the valuation issue with the person who is preparing the appraisal of the Tanner stock.
KatyDid Clothes has a $130 million (face value) 25-year bond issue selling for 104 percent of par that carries a coupon rate of 10 percent, paid semi annually. What would be Katydid’s before-tax component cost of debt?
The current price of a stock is $33 and the annual risk-free rate is 6%. A call option with a strike price of $32 and with one year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same ex..
Ultimately, what do owners of a firm want from the firm?
In 1991, Mario Smith and Luigi Joseph signed a lease for 3960 South State Street in Philadelphia, Pennsylvania. Joseph paid $6,000 for the first and last month's rent, and said to Smith, “We are in this together, partner.” Smith bought business cards..
You are looking at a one-year loan of $15,000. The interest rate is quoted as 10.0 percent plus two points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. Th..
Large Industries bonds sell for $1,071.08. The bond life is 9 years, and the yield to maturity is 5.0%. What must be the coupon rate on the bonds? Assume coupons are paid once a year and the face value is $1,000.
You are observing the following prices. A put option that expires in six months has an exercise price of $45 and it sells for $5.80. The stock is currently priced at $40, and the risk-free rate is 3.6% per year, compounded continuously. What is the p..
Cheeseburger and Taco Company purchases 12,349 boxes of cheese each year. It costs $12 to place and ship each order and $4.62 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders. What is t..
Consider options on Microsoft stock. Suppose that there are call options with a strike price of $10 and put options with a strike price of $10, both with the expiration date of January 16th.
Twelve yours ago, you deposited 3400 into an account; seven years ago you added an additional 1000 to this account. You earned 8 percent, compounded annually, for the first 56 years and 5.5 percent. Compounded annually for the last 7 years. How much ..
A new machine can be purchased for $1,800,000. It will cost $35,000 to ship and $15,000 to fine-tune the machine. The new machine will replace an older version that is fully depreciated and will be sold for $200,000. The firm's income tax rate is 35%..
Which one of the following is the prime objective of a residual dividend policy? _______ Maintaining a stable dividend Increasing the dividend at a steady pace Meeting the firm's investment needs Maintaining a stable dividend payout ratio
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