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George inherited $100,000 with the stipulation that he invest it to financially benefit his family. George and Alice decided they would in invest the inheritance to help them accomplish two financial goals: purchasing a Park City Vacation home and saving for their son, Cooper’s education. Vacation Home Cooper’s Education Initial Investment $50,000 $50,000 Investment horizon 5 years 18 years Alan and Alice have a marginal income tax rate of 30 percent (capital gains of 15 percent) and have decided to investigate the following investment opportunities. 5 Years Annual After-Tax Rate of Return 18 Years Annual After-Tax Rate of Return Corporate bonds (ordinary interest taxed annually) 5.75% 4.75% Dividend-paying stock (no appreciation and dividends are taxed a t 15%) 3.50% 3.50% Municipal bond (tax exempt) Future value is $65,000 Future value is $140,000 3.10% Complete the two annual after-tax rates of return columns for each investment and provide investment recommendations for George and Alice.
The current price of a stock is $15. In 6 months, the price will be either $19 or $11. The annual risk-free rate is 3%. Find the price of a call option on the stock that has an strike price of $12 and that expires in 6 months. (Hint: Use daily compou..
The real risk-free rate is 2.8%. Inflation is expected to be 2.85% this year, 4.75% next year, and then 3.3% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year T..
Lisa Sweet, the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about .15 on an annual basis over the last..
Seamus Finnigan has the opportunity to receive $18,000 now or $25,000 in 4 years. If Seamus can earn 5 percent on his investments, what is the present value of the $25,000 payment (rounded to the nearest dollar)?
Langley Longboards has $10 million in total assets with a debt to capital ratio of 0.20. Langley’s beta is currently 1.35, and its tax rate is 40%. Langley is considering retiring all of their debt to eliminate their financial risk, after the recapit..
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $655,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $107,000. If the..
The shorter the length of time between a present value and its corresponding future value, The annual percentage rate indicates the amount of? interest, including the effect of any compounding. If a bond is quoted at 97.5, it follows that the bond.
The economic order quantity- determines the reorder point. provides the lowest inventory costs.
Project Pavilion has a cost of $9,000 and is expected to produce benefits (cash flows) of $2500 per year for 5 years. Project Freedom costs $24,000 and is expected to produce cash flows of $6,400 per year for 5 years. Calculate the two projects’ NPVs..
Percival Hygiene has $10 million invested in long-term corporate bonds. The bond portfolio's expected annual rate of return is 9%, and the annual standard deviation is 10%. What is the standard deviation of this portfolio? The Treasury bill yield is ..
1 the tiger company has an opportunity to make an investment with the following estimated after tax cash flows-year
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,030,000 and will be sold for $1,230,000 at the end of the project. If the tax rate is 34 percent, what is the after tax ..
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