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Suppose that you are the sole owner of an all-equity firm, the assets of which are worth $500,000. The ROA is 15% per year paid as a dividend to you. If you have the firm issue $100,000 of debt at 6%, the interest expense will be paid by the firm out of the earnings that had constituted ROA. The debt is secured by the firm, not by you. The firm pays a special dividend to you of $100,000 on the day the debt is issued. The tax rate is 34%. What will your return on equity be in the year after you go into debt?
Find the future values of these ordinary annuities. Compounding occurs once a year. Round your answers to the nearest cent. Rework previous parts assuming that they are annuities due. Round your answers to the nearest cent.
You borrow $100,000 at an interest rate of 12% compounded semi annually on January 1st, 2005. The loan terminates on December 31st, 2008. The loan terms call for interest payments every six months (at the end of each period) for the next 3 years and ..
Stone got a 4% 30- year mortgage for $295,200. His bank sent him a statement to notify him of his new monthly PITI payment, $1809 ( $1409 for principal and interest, $308 for taxes and $92 for homeowner's insurance). How much interest will Stone pay ..
ABC Corp. mines copper, with ?xed costs of $0.60/lb and variable cost of $0.30/lb. The 1-year forward price of copper is $1.10/lb. The 1-year effective annual interest rate is 6.2%. If ABC Corp. does nothing to manage copper price risk, what is its p..
Ashley is an actuary who is employed by the Nebraska Department of Insurance. Her duties include monitoring the financial position of insurance companies doing business in Nebraska. Based on an analysis of annual financial statements that insurers ar..
Some lenders charge an up-front fee on a loan, which is subtracted from what the borrower receives. This is typically described as "points" (where one point equals 1% of the loan amount). The federal government requires that this be accounted for in ..
Regarding income taxes, which do you think is more important (and why)-- the average tax rate that a firm pays or the marginal tax rate the firm is paying?
What is the difference between pro forma financial statements and a cash budget? Explain why pro forma financial statements are not used to forecast cash needs.
Assume that the simple profit variance is -$200,000, while the flexible profit variance is +$200,000. Which of the following statements about this situation is most correct?
Suppose you have a portfolio that contains stocks that track the market index. You now want to change this portfolio to be 25% in commodities and 75% in the market index. How would you use derivatives to implement your strategy? How would you impleme..
XYZ corporation is authorized for 1,000,000 shares and currently has 800,000 shares outstanding. In an attempt to raise additional capital, XYZ decides to issue the remaining 200,000 shares for which it is authorized to do so. The issuance of an addi..
As a financial manager, what can you do to make sure your company stays solvent and is not too liquid? How do you determine if the company has too much liquidity?
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