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Assume a 40% corporate income tax. Your annual pre-tax income is $650,000 per year. If you finance some project with a $1,400,000 bond, on which you will have to pay 9% interest per year, how much will you have to pay in taxes each year (in dollars)? How much will you pay in taxes if instead of the bond you finance your project entirely with cash on hand? If the appropriate discount rate is 11%, what is the PV of next year’s tax savings from financing the project with a bond?
A firm has the opportunity to invest in a project ... Bookmark A firm has the opportunity to invest in a project that is expected to pay an end-of-year annual return of $2 million for each of the next fifteen years after taxes and expenses. Calculate..
What are the promised and expected cash flows and rates of return for the factory (without a loan), for the loan, and for a hypothetical factory owner who has to repay the loan first?
Determine the equivalent taxable yield.
Moonscape has just completed an initial public offering. The firm sold 6 million shares at an offer price of $12 per share. The underwriting spread was $.30 a share. The price of the stock closed at $18 per share at the end of the first day of tradin..
What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you have completed in this problem?
Sketch out a cash flow diagram for this project. What is the project's net present value? What is the internal rate of return? Should this project be accepted? Why or whynot?
How much can Janet save annually by using the better plan?
There is a foreign currency swap involving € and LIBOR$.
The presence of financial distress can explain why firms choose debt that are too high to fully exploit the interest tax shield. If there were no costs of financial distress, the value of the firm would continue to increase with increasing debt until..
Someone has just offered you the investment of a lifetime.
The Battle Creek Breakfast Food Company has developed a new breakfast cereal which it is considering for full-scale production. Development costs have totaled $1,200,000. If the new cereal goes into production, the company expects to receive $12 per ..
Assume you purchased 200 shares of greater than or equal to common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker? If the price goes up to $100, the stock paid a dividend of $2..
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