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1. Tax Savings. John and Cheryl just borrowed $30,000 on a home equity line of credit. The interest rate for the loan is 6.75% for the entire year, and they took out the loan on May 1. John and Cheryl are in the 28% tax bracket. What will be their tax savings for the first year ending December 31st?
2. Tax Savings. Noel has a 15% marginal tax rate. If he pays $1,400 in interest on a home equity loan in the first year, what will his tax savings be?
If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 30%.)
You want to borrow $92,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,800, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan?
Your employer contributes $75 a week to your retirement plan. Assume that you work for your employer for another 20 years and that the applicable discount rate is 7.5 percent. Given these assumptions, what is this employee benefit worth to you today?
An investor creates a protective put position by buying one share of a stock at $50 and buying a European put option on the stock with strike price $45 at $1.25. What is his profit if he holds his position until maturity of the option and the stock p..
A private, for profit clinic has a bond issue outstanding with a coupon rate of 8 percent and five years remaining until maturity. The par value of the bond is $1000, and the bond pays interest annually. What is the current value of the bond if prese..
A project has the following cash flows: Year Cash Flow 0 $ 42,500 1 – 21,500 2 – 32,500 What is the IRR for this project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % What is..
A man buys a house for $400,000. He makes a $150,000 down payment and amortizes the rest of the debt with semiannual payments over the next 5 years. The interest rate on the debt is 11%, compounded semiannually. Find the total amount paid over the li..
What are the required rates of returns on both stocks using the CAPM model? What are the expected rates of return of both stocks using the dividend growth model. Which stock would you recommend to purchase or sell? Why?
Nancy Marchand purchased a put option on British pounds for $.04 per unit. The strike price was $1.80 and the spot rate at the time the pound option was exercised was $1.59. Assume there are 31,250 units in a British pound option. What was Nancy’s ne..
Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10..
Weisbach Electronics is considering investing in India. Which of the following factors would make the company less likely to proceed with the investment?
Higher interest rates can be caused by
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