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Suppose your company needs to raise $35.4 million and you want to issue 24-year bonds for this purpose. Assume the required return on your bond issue will be 7.9 percent, and you’re evaluating two issue alternatives: a 7.9 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. How many of the coupon bonds would you need to issue to raise the $35.4 million? How many of the zeroes would you need to issue? In 24 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes?
Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm’s aftertax cash outflows for the first year under the two different scenarios.
Andiola Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent. If the company purchases the equipment for $1,500,000 it will depreciate it over 5 years, using straight-line depreciation.
Manny borrows 8600 dollars from Moe at an effective rate of 5.3 percent, and agrees to make 10 equal annual payments (the first a year from now) to repay the loan. Immediately after Manny makes the third payment, Moe sells the loan to Jack at a price..
The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up." As a result, the cemetery project will provide a net cash inflow of $89,000 for the firm during the first year, and th..
For a project to have more than one IRR, then both IRRs must be greater than the WACC. If two projects are mutually exclusive, then they are likely to have multiple IRRs. If a project is independent, then it cannot have multiple IRRs.
On July 1, Nancy paid $600,000 for a commercial building and an additional $150,000 for the land on which it stands. Four years later, also on July 1, she sold the property for $850,000. Compute the modified accelerated cost recovery system depreciat..
Assume that your capital is constrained, so that you only have $500,000 available to invest in projects. If you invest in the optimal combination of projects given your capital constraint, then the total net present value (NPV) for all the projects y..
Your landscaping company can lease a truck for $8,900 a year for 6 years. It can instead buy the truck for $45,000. The truck will be valueless after 6 years. What is the present value of the lease payments if the opportunity cost of capital is 7%? I..
Determine the annualized implied repo rate on a Treasury bond spread in which the March is bought at 60 and the June is sold at 61.5. The March CF is 1.1 and the June CF is 1.14. The accrued interest as of March 1 is 1.15 and the accrued interest as ..
Schumann Shoe Manufacturer is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold 8 years ago. It is amortizing $4.5 million of flotation costs on the 10% bonds over the issues 30-year life. Conduct a comp..
What is the supply function if the firm has avoidable fixed costs of $1562.50? What is the firm's supply function if there is no avoidable fixed cost?
Cost of debt using both methods Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. Find the net proceeds from sale of the bond, Nd. Calculate the before-tax and after-tax costs of debt.
The CEO has asked you to prepare a report on the situation. What factors (both within and outside of the firm) might account for this apparent discrepancy in performance?
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