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1. The key condition for equilibrium to occur in a market is:
A. the demand curve equals the supply curve. B. quantity demanded equals quantity supplied. C. price equals quantity. D. demand for one good equals demand for all other goods.
2. Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers?
A. $5.00 B. $7.75 C. $3.00 D. $3.75
3. Which of the following is a reason why the demand curve for an item would be more elastic?
A. The item is a necessity. B. People's incomes are very high relative to the cost of the item. C. The item has many very good substitutes. D. The cost of the item forms a very small part of the consumer's budgets.
The Montana Hills Co. has expected earnings before interest and taxes of $8,100, an unlevered cost of capital of 11%, and debt with both a book and face value of $12,000. The debt has an annual 8% coupon. The tax rate is 34%. What is the value of the..
A $200,000, 30 year, monthly payment mortgage has in interest rate of 4.5% plus two points. What is the lender’s yield if the loan is amortized over the full 30 years?
You are asked to estimate after tax cost of debt financing. It can issue 29 years to maturity bonds with a coupon rate of 10.57% paid annually, and par value of $1000. The bonds can be sold now at a price of $1,160 each. Marginal tax rate is 35%. The..
Assume that the interest rates for both the U.S. and German banks are 2%. You borrow $1M dollars from a U.S. bank for 6 months, convert it to Euros and invest it in a German bank for 6 months. The spot rate is 1.3664 USD per EUR.
What is dollar cost averaging? If you were an astute investor at timing market moves, would you want to use dollar cost averaging?
Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon, pay interest semi-annually, and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?
Stock Y has a beta of 1.3 and an expected return of 18.5%. Stock Z has a beta of 0.70 and an expected return of 12.1%. If the risk-free rate is 8% and the market risk premium is 7.5%, are these stocks correctly priced? If not, what would the risk-fre..
As of March 1, 2015, the exchange rate between the Brazilian real and U.S. dollar is R$3.19/$. Assume that the consensus forecast for the U.S. and Brazil inflation rates for the next 1-year period is 2.0% and 20.0%, respectively. What would you forec..
Provide recommendations and justifications of which depreciation method(s) are appropriate in this case. Explain how the choice of depreciation method affects reported profits.
Consider two stocks. If all their characteristics remain the same except for the correlation coefficient, which value of the correlation would make a portfolio of these two stocks the least risky?
Is the return on equity (ROE) affected by the use of financial leverage? Why does this result occur? Should Router choose the capital structure that maximizes its expected ROE? Explain.
Camp Manufacturing currently has average inventories of 90 days and accounts receivable are typically collected in 60 days. Camp’s payables are paid 30 days after the invoice is received. The company has sales of $30,000,000. Using a 365 day year, Wh..
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