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Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000.
If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b.Why are the percentage changes different?
You borrowed some money at 8 percent per annum. You repay the loan by making three annual payments of $247 (first payment made at t = 1), followed by five annual payments of $548, followed by four annual payments of $873. How much did you borrow?
George is considering an investment in Vandelay Inc. and has gathered the information in the following table. What is the expected standard deviation for a share of the firm's stock?
What is the company cost of capital? What is the after-tax WACC, assuming that the company pays tax at a 35% rate?
You have been asked to determine the length of time required before a $1,000,000 deposit will double if the interest rate is 10%. Round to the nearest year.
A 10-year corporate bond has an annual coupon rate of 9%. The bond is currently selling at premium. Which of the following statements is most incorrect?
What about the ratio of the market value of debt to that of equity? Would you judge that leverage has increased, decreased or stayed the same? Justify all answers.
What are some contemporary trends in global value chain management? How does the use of a global monetary unit (e.g., Euro or single currency) affect global value chain management?
PK Software has 9 percent coupon bonds on the market with 25 years to maturity. The bonds make semiannual payments and currently sell for 111.75 percent of par.
You have made a decision that you need to start a savings program to fund that future college education. How much will you have in the savings fund when Jessica is ready to enter college in 18 years?
The truck will have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40%. What is the initial outlay required to fund this project?
Victoria bond is a premium bond with 8% coupon. Houston bond is a 4 % coupon bond currently selling at a discount. Both bonds make annual payments and have a yield to maturity (YTM) of 6%, and have 5 years till maturity.
Compute the total tax liability, the average tax rate, and the marginal tax rate for the following corporation: $1,000,000 in taxable income; 15% tax up to $50,000, 25% up to $75,000, 34% up to $100,000, 39% over $100,000
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