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Why is the cost of preferred stock normally higher than the cost of debt?
Preferred stock dividends are tax deductions.
Common stock dividends are not tax-deductible.
Preferred stock dividends must be paid before common stock dividends.
Interest on debt is tax deductible.
Your firm has an average collection period of 24 days. Current practice is to factor all receivables immediately at a discount of 1.4 percent. What is the effective cost of borrowing in this case?
What is the "over-the-counter market" for derivatives?- What does the article mean by "broader system"?- How might over-the-counter trading of derivatives result in risks to the broader system?
Compare consumer lending to commercial lending. How are the similar? How are the different? Explain how the five questions (character, how much, what for, source of repayment and secondary source) can be applied to consumer lending. How would you rec..
Before-tax cost of debt and after-tax cost of debt: David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security.
When compounding occurs annually and the investment lasts longer than one year, compound interest:
You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money: ~Capital Cities ABC, Inc bonds with a par values of $1,000, a coupon interest rate of 8.75%, are selling f..
Dickson City Company has annual sales of $5 million, while the cost of goods sold is $3.2 million. All sales are made on a cash basis. The owner of Dickson has come up with the plan of giving credit to the customers. Should Dickson City introduce the..
Discuss accrual vs. cash accounting methods. What are they, why use one over another? What do most large business use? How are expenses and revenues defined under each method?
A firm has a market value equal to its book value. Currently, the firm has excess cash of $2,000 and other assets of $13,000. Equity is worth $15,000. The firm has 1,000 shares of stock outstanding and net income of $2,500. By what percent does the s..
Absalom Motors's 9% coupon rate, semiannual payment, $1,000 par value bonds that mature in 15 years are callable 9 years from now at a price of $1,100. The bonds sell at a price of $1,520, and the yield curve is flat.
The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What long position in the stock is necessary to hedge a short call option when the stri..
Donut, Inc. had 10,000 pounds of flour on hand at the beginning of the year. The company plans to produce 100,000 boxes of donuts during the year. Each box of donuts takes half a pound of flour. The company wants 8,000 pounds of flour on hand at the ..
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