Business risk refers to which of the following
An investment is available that pays a tax-free 5%. Ignoring risk, what is the pre-tax return on taxable bonds? The corporate tax rate is 30%.
The CEO of D'Amico Motors has been granted some stock options that have provisions similar to most other executive stock options. If D'Amico's stock underperforms the market, these options will necessarily be worthless.
Empress Corp. has no debt but can borrow at 9 percent. the firm's WACC is currently 15 percent, and the tax rate is 35 percent. a. what is the company's cost of equity? b. If the firm converts to 25 percent debt, what will its cost of equity be?
Quick Corp. makes its purchases under terms of 2/10 net 30. If Quick Corp. forgoes the discount and pays for its purchases according to the terms of its trade credit, what is Quick's effective cost of using this source of credit
Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of...
Kelly Corporation's next annual dividend is forecasted to be $4 and grow thereafter at 8% per year. What is the value of one share of Kelly Corporation stock to an investor who requires a 20% rate of return
Ben Holt, chief financial officer of (CFO) of Blades, Inc., has decided to counteract the decreasing demand for Speedos roller blades by exporting this product to Thailand. Furthermore, due to the low cost of rubber and plastic in Southeast Asia, Holt has decided to import some of the low...
For this and the next question (Assume earnings growth): Aon Electronics has EBIT of $200,000, a growth rate of 6%, and faces a tax rate of 40%. In order to support growth, Aon must reinvest 20% of its EBIT in net operating assets. The firm has $300,000 in 8% debt outstanding. A similar company...
Capital Structure. For this and the next 2 questions: Zilord Furniture Company (ZFC) currently has $50 million of debt at 10% interest rate. Its stock is selling for $25 per share, and there are 3 million shares outstanding. The firm's net operating income is expected to remain flat for the...
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1. Can you help me with this valuation problem?: Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes.
- a.Identify the cash flows, their timing, and the required return applicable to valuing the car.
- b.What is the maximum price you would be willing to pay to acquire the car? Explain.
2. How do you calculate the before tax-cost of the Sony bond and the after-tax cost of the Sony bond given the following information?:
- David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security:
- Sony bond
- Par value $1,000 Coupon interest rate 6% Tax bracket 20%
- Cost $930 Years to maturity 10