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The use of accelerated depreciation
1. initially increases the firm's profits
2. discourages investment in plant and equipment
3. initially decreases the firm's taxes
4. increases expenses and decreases cash flow
A project requires an initial cash outlay of $40,000 and has expected cash inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the project’s discounted payback period? Show your work
A pension plan is obligated to make disbursements of $1 million, $2 million, $5 million and $1 million at the end of each of the next four years, respectively. Find the duration of the plan’s obligations if interest rates are flat at 10% annually
Fielder Company obtained land by issuing 2,970 shares of its $10 par value common stock. The land was recently appraised at $123,140. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of the lan..
Suppose you find that prices of stocks before large dividend increases show on average consistently positive abnormal returns. Is this a violation of the EMH?
Firms have long-run target dividend payout ratios. Dividend changes follow shifts in long-term, sustainable earnings. Managers are reluctant to make dividend changes that might have to be reversed.
You purchase 3,000 bonds with a par value of $1,000 for $980 each. The bonds have a coupon rate of 7.2 percent paid semi annually, and mature in 10 years. How much will you receive on the next coupon date? How much will you receive when the bonds mat..
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.56 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require a 11 percent return on The Jackson-Timberlake War..
Allison Engines Corporation has established a target capital structure of 40% debt and 60% common equity. The current market price of the firm's stock is P0 = $36; its last dividend was D0 = $2.80, and its expected dividend growth rate is 8%. What is..
The liquidity premium theory of the term structure helps explain why on average, the Treasury yield curve typically slopes upward. The liquidity premium theory relies on the fact that the longer the maturity, the less liquid the bond and thus, the hi..
Create your own Capital Project analysis problem by performing an NPV calculation:
Explain how and why the secondary capital markets play an important role in our economy. how do secondary markets assist the primary market?
You are considering purchasing a house to rent to students. Would you use net present value (NPV) or internal rate of return (IRR) to evaluate this type of project?
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