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The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 10%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1, 167. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson's WACC using market-value weights.
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,900.00, and it would cost another $1,970.00 to install it. What is the initial cash outla..
A company has a capital structure of 45% debt, 5% preferred stock and 50% common equity. The company can obtain unlimited debt at an interest rate of 10%. The marginal tax rate is 35%. Find the after-tax cost of debt. Preferred stock carries a divide..
Assume a 25-year, $490,000 mortgage with a rate of 7.2 percent. 9 years into the mortgage, rates have fallen to 6.2 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate?
State of the economy Probability Return on Stock A Return on Stock B “Fiscal Cliff” resolved 0.3 25% -10% “Fiscal Cliff” not resolved 0.7 -5% 30% Suppose you have $10,000 total. If you put $4,000 in Stock A and the remainder in Stock B, what will be ..
How close could you get to a risk free investment with stocks? Are stocks inherently risky, so that a risk free return would not be possible?
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required ..
Describe the income tax advantages of making charitable gifts during a person's lifetime, including items that would qualify for income tax deduction. Give some examples.
Peter Jeff Jones earns 1,200 dollars per week. He is married and claims four withholding allowances. The FICA rate is: Social Security 6.2 percent on 113,700 dollars and a Medicare rate of 1.45 percent. To date his cumulative wages are 6,000 dollars...
Tony works full-time as a computer-repair technician who makes on-site repairs for individuals and small businesses. He says his gross profit margin is 94% because last year his total revenues were $100,000 and his expenses were $6,000. “I’m actually..
Three years ago, Sam purchased a farm on contract from an older lady for $149,000 at 7% interest over 15 years. The lady died unexpectedly and the heirs would like Sam to pay off the contract now, which has a current remaining balance of $130,000 wit..
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.75 coming 3 years from toda..
Ruth Hornsby is looking to invest in a three-year bond that makes semiannual coupon payments at a rate of 5.625 percent. If these bonds have a market price of $980.13, what yield to maturity and effective annual yield can she expect to earn?
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