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Mallovia has two tax brackets. The first $20,000 in income is taxed at a 10% marginal rate, and income above $20,000 is taxed at a 30% marginal rate. All income-earned income and nominal interest, dividend, and capital-gains income-is treated the same. The threshold for the 30% rate is currently indexed for inflation, and the real interest rate is 5%.
a. How does inflation affect the returns to saving in Mallovia? Compare the likely savings rate when expected inflation is 10% with the likely savings rate when expected inflation is zero.
b. How would your answer change if the threshold for the 30% rate were not indexed for inflation?
Net income results, reported in the financial statement presentation, can be affected by the inventory reporting methods used. FIFO, LIFO, and weighted average methods each have their own implications during periods of inflation and deflation. Consid..
In well functioning financial markets, and assuming rational behavior, why would a vegetarian prefer $100 worth of beef to $90 worth of vegetables?
Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable. Short-term debt is expected to increase by $100,000 and lo..
Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .15 .39 .49 .29 Good .55 .15 .20 .08 Poor .25 −.01 −.09 −.07 Bust .05 −.20 −.24 −.10 a. Your portfolio is..
LVMH currently has a debt-to-capital ratio of 10% and an average tax rate of 34%. LVMH's bonds have a 4% yield to maturity. Using the CAPM, the firm estimates that its cost of equity is 12%. What would be the new beta if the company goes ahead with t..
Research and write about the economical influences in the grocery retailers - Research and write the foreigh Market for Grocery retailers and the Market analysis for grocery stores in UK for the future predictions
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The all equity firm (it has no debt and so pays no interest) has shareholders who require 10% return on their invested capital. All of the firm’s capital is tied up in operating activities. The firm’s ROIC = 16%. Earnings before tax is $100 and the f..
An IPO is an example of a primary market transaction. Money markets are subject to wider price fluctuations and are therefore more risky than capital market instruments. A direct transfer of funds is more efficient than using financial institutions. ..
Trevor Hancock has just retired. He has set aside enough money in his retirement fund to be able to withdraw $15,000 per year for 20 years during retirement. If his fund earns 6% interest annually, what is the current value of his retirement fund?
Sam has just invested $35,000 for her newborn son in an education IRA. This money will be used for her son’s education 18 years from now. She calculates that she will need $200,000 by the time the boy goes to college. What rate of return will Lindsay..
This problem is useful for testing the ability of financial calculators and computer software. Consider the above cash flows. The IRRs, from smallest to largest, are____ percent, ___percent, ___percent, and ___percent.
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