Identical operating risk profile and identical pretax income

Assignment Help Financial Management

Reference no: EM131919699

1. Robert recently borrowed $20,000 to purchase a new car. The car loan is fully amortized over 4 years. In other words, the loan has a fixed monthly payment, and the loan balance will be zero after the final monthly payment is made. The loan has a nominal interest rate of 12 percent with monthly compounding. Looking ahead, Robert thinks there is a chance that he will want to pay off the loan early, after 3 years (36 months). What will be the remaining balance on the loan after he makes the 36th payment? (Please show with the Time Line and formulas)

a. $7,915.56

b. $5,927.59

c. $4,746.44

d. $4,003.85

e. $5,541.01

2. Company A (100% equity) is valued at $15,000,000 and Company B (which has $3,000,000 in long debt with an interest rate of 8%). The tax rate is 30%. Both A & B have identical after-tax profit $1,200,000 and it is given that both have identical operating risk profile and identical pretax income. Calculate:

(a) Value of B

(b) Capital Structure Mix of B

Reference no: EM131919699

Questions Cloud

Equipment for MACRS-GDS depreciation : An investment of $1,250,000 is made in equipment that qualifies as 7-year equipment for MACRS- GDS depreciation.

Create a forecast for each month : Use regression for the data from January to June to create a forecast for each month from July to the following January.

What will the wacc be after recapitalization : Bruce will borrow $61,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization?

Compare the forecasts given by the models : A ski repair shop at a resort in Colorado sells replacement poles each season. The shop needs to develop a forecast of next season's sales.

Identical operating risk profile and identical pretax income : Both A & B have identical after-tax profit $1,200,000 and it is given that both have identical operating risk profile and identical pretax income.

What is the total cost of a chase production plan : A firm must plan production for the next six months. Each unit costs $250 to produce and it has an inventory holding cost of $10 per unit per month based.

What should the aggregate plan be : The firm always plans to meet all demand. The firm currently has 120 workers capable of producing 120 units in a month (1 unit/worker).

Inversely related to the cost of equity : Financial risk is which of the fallowing Inversely related to the cost of equity. The risk inherent in a firm’s operations.

What is the cost of the production plan : The Johnson Company manufactures expensive medical diagnostic equipment. It plans to meet all of its projected demand (given below for the next year by quarter)

User Account

All Pages