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Two firms each have reported EPS of $5 per share. Firm A has reported that 80% of their earnings are “permanent” earnings, while 20% are one-time “transitory” earnings. Firm B has reported that 60% of their earnings are “permanent” earnings, while 20% are one-time “transitory” earnings and 20% are a current-year impact of an accounting change. For both firms an appropriate cost of capital is 20%.
Calculate the implied share price of Firm A
a. $21 (correct answer, not sure why)
b. $25
c. $30
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Suppose a firm earns $12,000,000 in taxable income. Which of the following is correct about the firm’s marginal and average tax rates?
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