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Jiminy's Cricket Farm issued a 30-year, 10.6 percent semiannual bond 6 years ago. The bond currently sells for 85 percent of its face value. The company’s tax rate is 38 percent.
a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Pretax cost of debt %
b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Aftertax cost of debt %
c. Which is more relevant, the pretax or the aftertax cost of debt?
A firm just paid a dividend of $2. The dividend is expected to grow at 25% for next two years and then grow at 2% thereafter. The required rate of return on the stock is 11%. What is the value of the stock?
A person borrows $15,000 and has to pay the sum back in 5 annual installments starting one year from the day at which the loan is made. The interest rates are compounded annually and are variable. The first two years, the interest rate is 10% per ann..
You have started a business that sells a home gardening system that allows people to grow vegetables on their kitchen countertop. You are considering two options for marketing your product. The first is to advertise on local TV. What are the break-ev..
Which of the following statements about flotation costs is incorrect: Flotation costs for debt is typically lower than flotation costs for equity. As a company issues more equity the flotation costs, as a percentage of the capital raised, decreases. ..
Normal production capacity of the business is 2000 units. Budgeted sales for April-2015 are 2200 units. Fixed cost remains unchanged in each month. You are required to, Determine the break even production level for month of March. Calculate Margin ..
You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $350 per month in a bond account. The return of the stock account is expected to be 9.5 percent, and the bond account wi..
Calculate the percentage change in the present value of the liability in part (a) and also of the value of the bond portfolio in part (b). Comment on the effectiveness of the hedge.
Write a 700- to 1,000-word paper identifying the specific cost accounting system an organization utilizes and how it uses the accounting information for financial management. Your paper must include the following
You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.35 million in anticipation of using it as a..
Assume you sell a European call option on AUD100,000 (AUD = Australian Dollar). The strike price is X(USD/AUD)=0.72 (USD = U.S. Dollar), the maturity is one year, and the premium is 5 cents per AUD. Find the maximum loss and the break-even point S(US..
Explain the diversification benefits of real estate in a portfolio. Given the numerous options examined for real estate investment which do you feel is the optimal route for your portfolio? Provide the rationale for the choices you make. Differentiat..
A stock portfolio P is comprised of three stocks A,B,C. The expected returns for the securities are .05 for stock A, .08 for Stock B and .18 for Stock C. The variance of returns for Stock A is .01, .16 for Stock B and .25 for Stock C. Prepare an expe..
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