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Your client supplies water to a housing development. The company requires new customers to pay for the extension of the water lines to their homes. The water lines are the company's property. The company has consistently treated the amounts received from its customers as a nontaxable contribution to capital and used the amounts received as a reduction in the cost of the water lines for tax purposes. In recent decisions, the courts have consistently ruled that the payments received from the utility customers in similar circumstances should be treated as income from services, rather than as a contribution to capital. Your client has concluded that it is only a matter of time before the IRS applies the recent court decisions to the company. The client would like you to explain the tax consequences of the IRS's likely adjustments based on these decisions.
A company has favorable financial leverage when it uses borrowed funds to earn a higher rate of return than the rate of interest paid for the borrowed money.
Suppose a stock had an initial price of $77 per share, paid a dividend of $1.3 per share during the year, and had an ending share price of $83. Compute the percentage total return.
The Daily News had net income of $372 of which 44 percent was distributed to the shareholders as dividends. During the year, the company sold 78 worth of common stock. What is the cash flow to stockholders?
The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of machine A is $400,000 and it will last for 7 years before it needs to be replaced. Which machine is a better choice f..
Pro forma financial statements, by definition, are predictions of a company’s financial statements at a future point in time. So why is it important to analyze the historical performance of the company before constructing pro forma financial statemen..
Porter bonds were issued five years ago with a 20 year maturity. The bond has a call provision that allows them to pay off the debt anytime after ten years by compensating bond holders with an extra year’s interest at the coupon rate. The bond’s coup..
For the company you selected, describe your company’s operations and the market in which it operates. Search for the EVA, and free cash flow using the firm’s annual report. Define their respective meanings and how your firm is performing in these are..
Bond X is noncallable and has 20 years to maturity, a 7% annual coupon, and a $1,000 par value. Your required return on Bond X is 11%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yie..
Assume you are an insurance consultant who is asked to give recommendations concerning the type of reinsurance plan or arrangement to use. Company A is an established insurer and is primarily interested in having protection against a catastrophic los..
A couple bought a $300,000 home four years ago using a 15 year loan with an annual rate of 4.5% and a 20% down payment. What would be their monthly payments? Today they want to use a home equity line of credit to pay off some credit card debt. How mu..
In 2012, Anheuser-Busch In Bev NY, maker of Budweiser and other beer, sold debt of varying maturities. According to an article in the Wall Street Journal: "The three-year notes priced with a risk premium of 0.5 percentage point over comparable Treasu..
Assume that $1000.00 par value, semiannual coupon U.S. Treasury note with two years to maturity (YTM) has a coupon rate of 5%. The yield to maturity of the bond is 8.80%. Using this information and ignoring the other costs involved, calculate the val..
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