MGFC10Final_W2013_Assg2_Sum2013docx.pdf - MGFC10H3(Intermediate Finance L01 L03 Final Exam Date ASSIGNMENT 2 Due Date Friday August 2 2013 By 12 noon in

MGFC10Final_W2013_Assg2_Sum2013docx.pdf -...

This preview shows page 1 - 3 out of 3 pages.

MGFC10H3 (Intermediate Finance) L01 & L03 Final Exam Date: April 18, 2013 ASSIGNMENT 2 Due Date: Friday August 2, 2013 By 12 noon in IC366 Prof. Syed W. Ahmed STUDENT’S NAME:_ _______________________________________________ Last First Middle STUDENT’S I.D. NO.:_______________________________________________ QUESTION NO. MAX. MARKS MARKS OBTAINED 1 20 __________________ 2 20 __________________ 3 15 __________________ 4 25 __________________ 5 20 __________________ TOTAL MARKS 100 __________________ GOOD LUCK Management, 1265 Military Trail, Toronto, ON, M1C 1A4, Canada
Image of page 1
-2- QUESTION 1: PennyJC is considering issuing $10,000,000 worth of perpetual bonds yielding $600,000 interest per year. PennyJC currently has no debt outstanding and will use the bond proceeds to repurchase equity. PennyJC has 100% dividend payout ratio and EBIT is $2,000,000 per year forever. Corporate tax rate is 40%. a. If the personal tax rate is 28%, which plan (all equity or debt + equity) offers the investors the highest cash flows? Why? b. If the shareholders require a 10% return before personal taxes, what is the value of the firm under each plan? (Do not ignore personal taxes). c. Suppose T s =20% and T b =32%. What are the investors' cash flows under each plan? Repeat part (b). QUESTION 2: PharmGen Limited has a target B/V ratio of 3/4 and is in the 30% tax bracket. The required rate of return on the
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 3 pages?

  • Fall '16
  • SyedAhmed
  • corporate tax rate, lease payment, Jest Airways, RiverRock Lessor Limited

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors