A bond selling yield 7% after flotation costs, but before adjusting for the marginal corp. tax rate of 34%. In other words, 7% is the rate that equates the net proceeds from the bond with the present value of the future cash flows. (principal & interest) Compute the cost
don has assets of $5,500 of which $1800 are in checking and savings accounts. His annual expenses are $15000. Don's liquidity ratio is
A firm must raise $30 million for a new project. The flotation costs for selling debt and equity are 5% and 9%, respectively. The firm has a target debt-toequity ratio of 35%. If the firm considers flotation costs, what is the total amount of capital to be raised for the new project?
Acme Explosive Company has a marginal cost of equity at 15%, while it pays a dividend of 12% on its preferred stock, with an interest payout on a per bond basis of $95 annually. The company is 60% equity (common stock) funded, and 10% funded by preferred stock. The applicable corporate tax rate...
The following equation is sometimes used to forecast financial requirements: AFN = (A0*/S0) S - (L0*/S0) S MS1 (1 POR) What key assumptions do we make when using this equation? Under what conditions might this assumption not hold true?
What is meant by the term self-supporting growth rate? How is this rate related to the AFN equation, and how can that equation be used to calculate the self-supporting growth-rate?
If market share prices fluctuate excessively over a 5 year period, what does it mean? In this case, what would it mean if market share prices were stable? Which is better and why?
McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the...
you are considering the purchase of XYZ company's perpetual preferred stock, which pays a perpetual annual dividend of $8 per share. If the appropiate discount rate for thiS investment is 14%. what is the price of one share of this stock?
13-70 Inventory Measures, Production Scheduling, and Evaluating Divisional Performance The Calais Company stresses competition between the heads of its various divisions, and it rewards stellar performance with year-end bonuses that vary between 5% and 10% of division net operating income...
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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