Week_2_Homework__FI_515_Caryl_versionSept07_Online_KEY[1]

Week_2_Homework__FI_515_Caryl_versionSept07_Online_KEY[1] -...

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Week 2 Homework Answer Key FI 515 1) The Walsh Trading Company is in the 35% marginal tax bracket. What would be its after-tax yield from investing in each of the following securities? SHOW ALL WORK. a. US Treasury bond paying 8.0% interest. (.08)(1-T) = (.08)(1- .35) = (.08)(.65) = .052 or 5.2% b. Municipal bond paying 5.2% interest. Interest on municipal bonds is NOT taxable at the federal level: (.052)(1-T) = (.052)(1- .00) = (.052)(1.00) = .052 or 5.2% c. Preferred stock paying a 5.81% annual dividend yield. Dividends received by a corporation as a result of owning stock (preferred as well as common) are up to 70% tax free: (.0581)[1-(.30)(.35)] = (.0581)(1- .105) = (.0581)(.895) = .052 or 5.2% 1
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2) Santo Chili Corporation has sales of $15,000,000, cost of goods sold of $6,000,000, selling and administrative costs of $2,500,000, and depreciation expense of $500,000. Santo also paid $200,000 of interest expense and received $150,000 of dividends from other corporations. Santo Chili had a long-term capital gain of $400,000 and paid
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Week_2_Homework__FI_515_Caryl_versionSept07_Online_KEY[1] -...

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