A bond issued by the State of Pennsylvania provides a 6.5% yield. What yield on a Synthetic Chemical Company bond would cause the two bonds to provide the same after-tax rate of return to an investor in the 35% tax bracket? a. 7.80% b. 10.00% c. 7.90% d. 9.40% e. 8.60% O000 Which of the following statements is most correct? a. 70% of the dividends received by corporations is excluded from taxable income. Retained earnings, as reported on the balance sheet, represents the amount of cash a company has available to pay out as b. dividends to shareholders. c. The corporate tax system favors equity financing, as dividends paid are deductible from corporate taxes. Because taxes on long-term capital gains are not paid until the gain is realized, investors must pay the top individual tax rate on d. that gain. e. 70% of the interest received by corporations is excluded from taxable income. Hayes Corporation has $300 million of common equity, with 6 million shares of common stock outstanding. If Hayes' Market Value Added (MVA) is $206 million, what is the company's stock price? a. $84.33 b. $94.45 c. $104.57 d. $71.68 e. $100.36 Scranton Shipyards has $18 million in total investor-supplied operating capital, and its WACC is 10%. Scranton has the following income statement: Sales $10.0 million 6.0 million $ 4.0 million 2.0 million $ 2.0 million 0.8 million $ 1.2 million Operating costs Operating income (EBIT) Interest expense Earnings before taxes (EBT) Taxes (40%) Net income What is Scranton's EVA? a. $690,000 b. $720,000 c. $630,000 d. $600,000 e. $510,000 Watson Oil recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $1,175 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow? a. $220 b. $249 c. $238 d. $271 e. $236 Carter Corporation has some money to invest, and its treasurer is choosing between City of Chicago municipal bonds and U.S. Treasury bonds. Both have the same maturity, and they are equally risky and liquid. If Treasury bonds yield 6%, and Carter's marginal income tax rate is 16%, what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two? a. 5.19% b. 6.30% C. 4.94% d. 5.04% e. 4.28%
