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You have recently accepted a one-year employment term by a firm. The firm has given you the option of receiving your salary as a lump sum value of $30,000 at the end of the year or as 12 monthly payments of $2,400 starting one month after you start work. If your relevant discount rate is 2 percent per month, then which salary options would you prefer? (ignore taxes, risk, and consumption)
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 30% debt and 70% equity; however, the CEO believes the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk pre..
A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within ten days; otherwise the bill is due at the end of sixty days. Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advan..
Large cap stocks had the nominal rates of return of 11.89%. The rate of inflation during the last year was 2.57 percent. What is the real rate of return for large cap stocks.
Your hospital is evaluating two alternative delivery trucks. Truck A has an initial cost of $27,000 and expected annual operating costs of $7,000. Truck A has an estimated seven-year life. Truck B will cost $20,000 and will last five years, with annu..
Last year Malko Enterprises issued 6-year bonds at par with annual coupon rate of 7.5%, payable semi-annually. An investor purchased some of these bonds last year and sells them today for $1050. What is the holding period return?
Capital Structure- Kirsten Neal is interested in purchasing a new house given that mortgage rates are at a historical low. Her bank has specified rules regarding an applicant’s ability to meet the contractual payments associated with the requested de..
The personal auto policy contains several coverages that meet the insurance needs of typical insured individuals. For each of the following coverages, briefly describe the type of coverage provided, and give an example of a loss that would be covered..
An orcharder spends $100,000 to planet pomegranate bushes. It will take four years for the bushes to provide a usable crop. He estimates that every year for 20 years after that he will receive a crop worth $9,500 per year. If the discount rate is 9%,..
Smith Corporation reported net income of $200,000 for 2008. Its EBITDA amounted to $800,000 and interest expense was $100,000. Smith‘s corporate income tax rate was 30%. Calculate the amount of depreciation expense that was reported in its income sta..
Sixx AM Manufacturing has a target (market value) debt equity ratio of 0.6. Its cost of equity is 19 percent, and its cost of debt is 9 percent. If the tax rate is 34 percent, what is the company's WACC?
Consider a 10-year, $1000 coupon bond, redeemable at par, and assume that the coupon is paid continuously with an annual coupon rate of 5%. The bond is said to be callable, if the borrower (the issuer) can redeem the bond at a time prior to the matur..
Blue Bull, Inc., has a target debt-equity ratio of .84. Its WACC is 8.8 percent, and the tax rate is 40 percent. If the aftertax cost of debt is 5 percent, what is the cost of equity? If the company’s cost of equity is 12.4 percent, what is its preta..
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