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1. As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.
True
False
2. The interest paid by a firm is tax-deductible and is referred to as interest tax shield. This is the additional amount that a firm would have paid in taxes if it did not have any debt in its capital structure.
3. In a world with taxes, interest tax shield tends to reduce a firm's weighted average cost of capital.
Beasley Ball Bearings paid a dividend of $4 last year. The dividend is expected to grow at a constant rate of 6 percent over the next five years. The required rate of return is 15 percent (this will also serve as the discount rate in this problem). U..
You bought EMU bond: 5-year, coupon= 12%, paid semi-annually, par= $1,000, and YTM = 8%. You sold the bond at the end of 4-years. You have also been reinvesting the coupon payments all along at the same 8% YTM rate. What is your wealth at the end ..
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $5 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales.
On 1/1/14 I invested $30,000. On 6/1/15, my fund is worth $32,000, and I deposit/withdraw M dollars. On 12/31/15, my fund is worth $30,000. The dollar-weighted return is equal to the time-weighted return in 2015. Calculate the value of M and M is not..
How do the following features of a corporate bond affect its yield: call option, convertibility, collateralization, sinking fund, and senior status. Why are the GSEs said to be characterized by moral hazard? Any evidence that this is a serious proble..
"Load balancing" refers to the process of loading data in a sequential fashion during an ETL process. In a three tier ERP environment, there is typically an application, database and a client (or browser) running. A program that aids communication be..
Calculate the current price of a $5,000 par value bond that has a coupon rate of 17 percent, pays coupon interest quarterly (i.e., 4 times per year), has 29 years remaining to maturity, and has a current yield to maturity (discount rate) of 9 percent
A bank offers an investment opportunity, which requires you to invest 10,000 today and the bank promises to return 15,000 in 10 years. What is the embedded interest rate offered by the bank?
An organisation buys a tangible non-current asset for £200,000. It has an estimated scrap value of £20,000 and an expected useful economic life of 10 years. What depreciation will be shown in the income statement for year 3? How would the non-current..
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). Suppose that today you buy a bond wit..
Which of the following are inconsistent with the semi-strong form of the efficient market hypothesis? Suppose a security's mean return is 1.50%. On a particular day, the return on the market is 1.20% while the return on the security is 1.85%. Calcul..
Consider a perpetuity-due with a first payment of 5000 at time 0 and each subsequent payment decreases by 9%. Find the PV of this perpetuity at time 0 given an annual effective rate of interest i=2%.
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