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Choose one of the following and explain your answer:
Financing an investment through a loan can be a financially sound decision if:
A. The sum of the differences of annual interest paid minus payments towards the principle is positive
B. The sum of the differences of annual net cash flows minus annual after-tax payments is positive
C. The sum of the differences of net annuities over time is positive
D. The sum of the differences of net cash flows minus tax savings is positive
Assume that you just won the lottery. Your prize can be taken either in the form of $ 80,000 at the ned of the next 20 years (1,600,000 over 20 years) or as a single amonut if $ 687,000 paid immediatly. If you expect to be able to earn 4% annually on..
The Blitz Corporation is expected to pay a $1.50 per share dividend at the end of the year. The dividend is expected is expected to grow at a constant rate of 6% per year. The required rate of return on the stock is 11%. What is the current value per..
An investor is deciding between two investment alternatives. Alternative A requires outlays of $50,000 in each year of the first 5 years and net returns of $80,000 are expected in each of years 4, 5, 6, 7 plus a salvage value of $50,000 in year 9. Us..
Analyze the financial statement by computing the most significant financial ratios like: Liquidity Ratios, Asset Management Ratios, Profitability ratios, Debt Management Ratios, and Leverage Ratios.
Gnomes R Us is considering a new project. The company has a debt-equity ratio of .82. The company’s cost of equity is 14.7 percent, and the aftertax cost of debt is 8 percent. What is the company’s WACC? What discount rate should the firm use for the..
Cost of Common Equity and WACC Patton Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is P0 = $..
Your brother, who is 6 years old, just received a trust fund that will be worth $32,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund today?
What is the sensitivity of the NPV to the price? and quantity? Two parts. Price and quantity. McGilla Golf is evaluating a new golf club. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 fo..
North Side Wholesalers has sales of $948,000. The cost of goods sold is equal to 72 percent of sales. The firm has an average inventory of $23,000. How many days on average does it take the firm to sell its inventory?
Set up and amortization for a $25,000 loan to be repaid in equal installments at the end of the next 3 years. The interest rate is 10% compounded annually. What percentage of the payment represents interest and what percentage represents principal fo..
Sadik Inc.'s bonds currently sell for $1,270 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)?
A(n) ____ will increase the market value of a call option.
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