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As a financial adviser to individual investors, your boss has asked you to write a memo to him analyzing a choice of two bonds for a client seeking to invest $350,000. The Florida-based client has a relatively high taxable income, and while she has an affinity for municipal bonds, she is looking for interesting fixed income alternatives. In your meeting with your boss you took notes on the two bonds the client is considering. One is a 10-year, AA rated municipal bond issued by the City of Boston with a 3.875% coupon, and the other is the senior tranche of an auto ABS, also with a 10-year maturity and a 6.875% coupon. The client has a Federal marginal tax rate of 35%.
What is the after-tax return of the auto ABS is for the client?
Compare the pre- and post-tax returns on each bond for the client in either interest rate or dollar terms.
What bond would be the better choice?
If my client moves to California and now is subject to a state marginal tax rate of 9.55%. what would happen to the following:
What the new after-tax return of the auto ABS is for the client as a California resident
Would you still select the same bond above?
You're a US company with a customer that is going to pay you 10,000 Euros in six months. The correct futures hedge for this condition is to enter in a contract in which you buy Euros (True or False)
The following information has been obtained for the Kerdyk Corporation. Compute taxable income and income tax payable for 2007.
It is sometimes said that in debt service funds, the accounting for interest revenue is inconsistent with that for interest expenditure. Explain. What is the rationale for this seeming inconsistency?
The corporation owns a building with a $160,000 adjusted basis and a $120,000 fair market value. The company has earnings and profits of $200,000.
Calculate the cash dividends required to be paid for each of the following preferred stock issues: The semiannual dividend on 6% cumulative preferred, $50 par value, 30,000 shares authorized, issued, and outstanding.
Find two annual reports from competing publicly traded companies of your choice. Prepare an overview of the two companies including a brief synopsis of the industry the companies are in, the market share each company holds, and the length of time ..
Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date.
If the manager of the Eastern Division is evaluated on return on investment alone, will the manager invest in the new project? Explain.
Virginia, who was experiencing financial difficulties, was able to adjust her debts as follows. Determine the tax consequences to Virginia.
Page Enterprises has bonds on the market making annual payments, with eight years to maturity, and selling for $988. At this price, the bonds yield 7.90 percent.
Examine the major factors which impact a company’s decision of whether to pay the dividend and determine what you believe is the most significant driver of the decision.
What is the basis for deciding whether to use the spot rate or some other exchange rate when converting a foreign subsidiary's trial balance accounts into U.S. dollars under the temporal method?
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