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The treasurer of Kelly Bottling Company (a corporation) currently has $220,000 invested in preferred stock yielding 12 percent. He appreciates the tax advantages of preferred stock and is considering buying $220,000 more with borrowed funds. The cost of the borrowed funds is 14 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 2 percent more for funds than the company will be earning on the investment. Kelly Bottling is in a 35 percent tax bracket, with dividends taxed at 10 percent.
a. Compute the amount of the aftertax income from the additional preferred stock if it is purchased. (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 28 percent per year during the next three years, 18 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 11 percen..
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Most state lotteries in the U.S. give Lottery winners of particularly large prizes the option of taking the total prize as an annuity over several years, usually 10-20, or as a discounted lump sum now. What does this relationship suggest to potential..
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What is the Macaulay duration of a 5.2 percent coupon bond with eight years to maturity and a current price of $1,053.10? What is the modified duration?
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You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 14 percent, –14 percent, 16 percent, 26 percent, and 10 percent. Suppose the average inflation rate over this period was 3.5 percent and the average T-bi..
You are making an investment of $110,000 and require a rate of return of 14.6 percent. You expect to receive $48,000 in the first year, $52,500 in the second year, and $55,000 in the third year. There will be a cash outflow of $900 in the fourth year..
Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay its first dividend of $.90 per share in 2 years. This dividend will grow at 13 percent indefinitely. Using a 15 percent discount rate, compute the value of this..
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