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1. You are comparing a corporate bond with 8.5% yield to maturity (YTM) and a municipal bond with a 5.5% yield to maturity (YTM). At what income tax rate would you be indifferent between these two bonds? (i.e. they offer the same after-tax return rate)
A local firm has debt worth $250,000, with a yield of 9%, and equity worth $400,000. It is growing at a 6% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 11%. Under the MM extension with growth, what is the value o..
JJ Industries will pay a regular dividend of $1.50 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 9 percent, and the current share price is $58, what ..
Suppose a firm finds itself as the target of a possible hostile takeover. An outsider investor has acquired a major stake of shares and is threatening to exert influence on the board.
Consider a $5,700 deposit earning 9 percent interest per year for 9 years. What is the future value? How much total interest is earned on the original deposit?
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.2 percent coupon bonds are selling at a price of $776.45. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answ..
The target capital structure for QM Industries is 35 % common stock 7 % preferred stock, and 58 percent debt. what is QM's weighted average cost of capital?
Discuss why firms are willing to pay large fees to consultants for commodity and financial price forecasts
ABC’s credit terms are 1/6, net 35. Based on experience, 33 percent of all customers take the discount. ABC has annual credit sales of $177,457. What is the average investment in accounts receivable as shown on the balance sheet?
TV’s R Yours is advertising a deal, in which you buy a flat screen TV for $4,769 (including tax) with one year before you need to pay (no interest is incurred if you pay by the end of the one year). How much would you need to deposit at the end of ea..
Will the Taylor Company bonds sell for a premium or a discount? Calculate the current value of each Taylor Company bond.
An office building is valued at $1,000,000 when net income is capitalized at a rate of 12 percent. If total operating expenses are 40 percent of effective gross income, what is effective gross income? The cost of constructing a building today with th..
A project currently generates sales of $12 million, variable costs equal 40% of sales, and fixed costs are $2.4 million. The firm’s tax rate is 40%. Assume all sales and expenses are cash items. What are the effects on cash flow, if sales increase fr..
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