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Earls wants to provide for his dad’s retirement and his future children; so he figures out a way to kill two birds with one stone. He sets up a perpetuity at 8.5% that will pay his dad $50,000 a year for the rest of his life. Then, when his dad dies, his children will inherit the perpetuity. The children will have the option of either cashing it in and splitting the principal, or letting it continue throughout their lifetime. If Earl’s children decide to cash in the perpetuity, how much money will they have to divide among themselves?
You are a shareholder in a C corporation. The corporation earns $2.45 per share before taxes. On e is has paid taxes, it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 38%, and your personal tax rate on (both..
KatyDid Clothes has a $110 million (face value) 25-year bond issue selling for 102 percent of par that carries a coupon rate of 8 percent, paid semiannually. What would be Katydid’s before-tax component cost of debt?
Suppose a firm is considering the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires $11,350 investment in plant and equipment, is depreciated using the straight line depreciation method ov..
Gilpatric Corporation produces and sells two products. In the most recent month, Product Q71M had sales of $33,500 and variable expenses of $8,940. Product V04P had sales of $54,500 and variable expenses of $31,540. The fixed expenses of the entire c..
Flounder Corp. has the following beginning-of-the-year present values for its projected benefit obligation and market-related values for its pension plan assets
A contractor must choose between buying or renting a crane for the duration of a 4 year construction project. The contractor uses an MARR of 8%. The crane costs $500,000 and can be sold for $350,000 after 4 years. Determine the incremental benefit-co..
In February 2014 the risk-free rate was 4.06 percent, the market risk premium was 8 percent, and the beta for Twitter stock was 1.37. What is the expected return that was consistent with the systematic risk associated with the returns on Twitter stoc..
A firm wants to create a weighted average cost of capital (WACC) of 7.2 percent. The firm's cost of equity is 10 percent and its pre-tax cost of debt is 8 percent. The tax rate is 34 percent. What does the debt-equity ratio need to be for the firm to..
A 13-year annuity pays $3,000 per month, and payments are made at the end of each month. The interest rate is 9 percent compounded monthly for the first six years, and 7 percent compounded monthly thereafter. What is the present value of the annuity?
What is the average dollar value of inventory based upon ordering using the EOQ? What is the optimal reorder point based upon using the EOQ?
A stock has an expected return of 13.3 percent and a beta of 1.19, and the expected return on the market is 12.3 percent. What must the risk-free rate be?
Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $9,953, $6,030, and $13,798 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determ..
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