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Guardian Inc. is trying to develop an asset-financing plan. The firm has $410,000 in temporary current assets and $310,000 in permanent current assets. Guardian also has $510,000 in fixed assets. Assume a tax rate of 30 percent. a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 70 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 16 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan. b. Given that Guardian’s earnings before interest and taxes are $290,000, calculate earnings after taxes for each of your alternatives. c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?
Suppose you bought an A-rated, 20-year maturity, 8% coupon bond with face value of $1,000 and semi-annual coupon payments.
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What two components make up the cost of money for equity?
Crawford inc has two bond issues outstanding, both paying the same annual interest of $110, called series A and series B. Series A has a maturity of 12 years, whereas series B has a maturity of 1 year. Why does the longer term (12 year) bond fluctuat..
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Marcel Co. is growing quickly. Dividends are expected to grow at a 26 percent rate for the next 3 years, with the growth rate falling off to a constant 7 percent thereafter. Required: If the required return is 14 percent and the company just paid a $..
Calculate the theoretical one-year goldfish futures price. Give your answer in dollars and cents to the nearest cent.
Using the Historical Tablles available at the budget tab of the website of the U.S. Office of Management and Budget,
Suppose you purchase a 3-year, 5-percent coupon bond at par (F=100) and held it for two years. During that time, the interest rate falls to 4%. Calculate your annual holding period return. (Assume that you do not invest the coupon payment at the end ..
John Friedman is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that carry a 12 percent interest rate. What is his after-tax yield (interest rate) on the bonds?
What is the expected utility of the project actualized at the risk-free rate of 7%. Is this a worthwhile investment?
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