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A firm in the 40% income tax bracket has an investment that costs $300 in year 0, and offers a before-tax return (cash flow) in year 1 of $500.
Assume that the firm's before-tax opportunity cost of capital, as provided by the external capital markets, is approximately 20%. Its debt cost of capital is E(r˜Debt) = 15% + wDebt . 5%.
Compute the APV, WACC, and a WACC-based value if the firm borrows $50 to finance it. Repeat if the firm borrows $100.
Which inventory costing method should a company use when it wants to minimize taxes? Does your response depend on whether prices are rising or falling? Explain your answer.
In its most recent financial statements, Newhouse Inc. reported $25 million of net income and $300 million of retained earnings. The previous retained earnings were $285 million. How much in dividends were paid to shareholders during the year? Assume..
You own a portfolio that has $2500 invested in Stock A and $3500 in Stock B. If the expected returns on these stocks are 10% and 16%, respectively, what is the expected rate of return on the portfolio?
Write out the Security Market Line (SML) equation and use it to calculate the required rate of return on each alternative. Compare the expected rates of return with the required rates of return. How do these perform against your predictions?
At year-end 2013, Wallace Landscaping’s total assets were $1.8 million and its accounts payable were $450,000. Sales, which in 2013 were $2.1 million, are expected to increase by 20% in 2014. Total assets and accounts payable are proportional to sale..
Argus Equipment Corp. has just issued fixed rate debt at 9.75 percent. Yet, it prefers to convert its financing to incur a floating rate on its debt. It engages in a three-year interest rate swap in which it swaps variable rate payments of LIBOR plus..
In tight housing markets, rent controls are often applied to hold the price of housing to a reasonable level. How does this policy affect the relative gains of tenants and landlords, and the allocative function of prices?
Bright star bank pays a nominal annual interest rate of 11.36 percent compounded quarterly on your savings account. Calculate the effective annual rate or EAR (answer plus units) round 2 decimal places
Which journal entry reflects the adjusting entry needed on December 31?: Last year, BOC purchased software for $10,000. The expected life of the software is 2 years and it has no expected salvage value. Now, it is December 31, the end of the fiscal y..
You are shopping for a car and read the following advertisement in the news- paper: Own a new Tesla! No money down. Five annual payments of just $20,000.You have shopped around and know that you can buy a Tesla for cash for $85,000. What interest rat..
Luis has $120,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $3000/quarter into the new account until h..
A U.S. company is considering a project in Mexico. Estimated cash flows are 10 million Mexican pesos the first year and 20 million Mexican pesos the second year. The U.S. Company would incur a cost of $2 million at the start of the project, and its c..
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