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A corporate bond issued by Gordon Inc. currently yields 4%. A municipal bond issued by Wenham, of equal risk, currently yields 3%.
(a) At what marginal tax rate would an investor be indifferent between these two bonds?
(b) Which bond would an investor prefer if her marginal tax rate is lower than in (a)? Explain.
How does Plato's conception of an ideal government differ from that of Aristotle's? Why do you think Plato, and philosophers in general, find the concept of a perfect society, or utopia, so useful?
A call option is made at t=0 and expires in 3 months. Strike price is $90 but price today is $80. Risk free rate is 4%. Draw a graph that shows the price as a function of volatility and explain the graph. Determine implied volatility of the underlyin..
Crosby Industries has a debt–equity ratio of 1.2. Its WACC is 13 percent, and its cost of debt is 4 percent. What is the company’s cost of equity capital?
A company using activity based pricing marks up the direct cost of goods by 0.27 plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $6.10 per order placed; $3.00 per sepa..
NPV profile of two mutually exclusive projects. Moulton Industries has two potential projects for the coming? year, Project? B-12 and Project? F-4. The two projects are mutually exclusive. The cash flows are listed in the following table. Draw the NP..
The stock of Verde Enviro-Systems has a beta of 1.2. according to the Capital Asset Pricing Model, what should be the required rate of return
Now, assume you have the option of buying a different fitness center with the same average profits and interest rate as the one in Problem #8. You have negotiated the price of this firm down to $800,000. Would you be willing to purchase this one?
Determine the original basis. Then calculate the profit from a hedge if it is held to expiration and the basis converges to zero. Show how the profit is explained by movements in the basis alone.
Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit. The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy. The monthly interest rate is 0.5 percent and the variable ..
Dane Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $56,000 and will generate after-tax cash inflows of $12,000 per year for 8 years. For each of the costs of capital listed, (1) calculate the ne..
The Yield to Maturity (YTM) on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). Suppose that toda..
An investment offers the following cash flows: $650 today, $750 one year from now, $900 in 2 years, and $850 in 3 years. If the relevant interest rate is 4% per year (an APR, with interest compounded annually), what is the value of the investment 3 y..
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