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Describe interest rate risk and reinvestment rate risk and how these relate to the maturity risk premium. Based on reinvestment rate risk, provide an example on how a 1-year bond or a 10-year bond would be a better investment for a typical community as represented by those attending your seminar.
Calculate the financial breakeven point, and the earnings per share for each structure assume a 40% tax rate on ordinary income. Graph the two capital structures on the same set EBIT- EPS axes. Compute the degree of financial leverage with each struc..
S. Girard Inc. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $595,000, and its net income was $25,000. Stockholders recently voted in a new management team that has promised to lower cost..
The 2013 income statement for Lou's Shoes shows that depreciation expense is $2 million, EBIT is $5 million, EBT is $3 million, and the tax rate is 40 percent. At the beginning of the year, the balance of gross fixed assets was $16 million and net op..
The Diversified Growth Co. has three different divisions. Its low-risk division accounts for $5 million of its assets and has a beta of 0.8. Its middle-risk division accounts for $10 million of its assets and has a beta of 1.1, while its high-risk di..
What is the breakeven level of output for the new tractor? If management expects to generate a target profit of $2 million from the tractor each year, how many tractors must be sold?
You are 22 year old today. You want to retire at age 55 and have $3 million at that time. Assume you can earn an average annual rate of return of 8.8 percent. Your hope is that you will win the lottery today and be able to fund your retirement dream ..
Figure 3.6 gives a decision tree for Mr. Smart’s situation. Mr. Smart is risk-averse. The amount of utility he derives from a payoff is Utility = 2In (payoff). Because of a planned major purchase, Mr. Smart intends to sell his investment one year lat..
The end of the year is approaching and your new tax client, Maxine, has begun to focus on ways of minimizing her 2015 income tax liability. Several years ago she purchased an investment in Teal Limited Partnership, which is subject to the "at risk" a..
If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless. b. The req..
A security produced returns of 13 percent, 18 percent, 9 percent, 23 percent, and -17 percent over the past five years, respectively. Based on these five years, what is the probability that this stock will earn more than 24.76 percent in any one give..
Find the sales tax of a new above ground pool that you pay $10,500 for if the tax rate in your area is 8.9%. b) Find the marked price and tax for an $11 beer at the local football stadium, where the sales tax rate is 9.5%.
On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 2.5%. The loan is to be repaid in equal monthly payments over 15 years. All taxes and insurance premiums are to be paid separately. What would be your monthly payment?
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