Question
Which of the following is closest to the annualized rate of return on a stock purchased for $6,000 and sold for $6,100 ninety (90) days
Which of the following is closest to the annualized rate of return on a stock purchased for $6,000 and sold for $6,100 ninety (90) days later?
a. | 100% | |
b. | 1% | |
c. | 7% | |
d. | Very close to 0% | |
e. | 61% |
At an interest rate of 8%, what comes closest to the amount of time it takes for a deposit of $7,599 to double in value?
a. | 3.25 years | |
b. | 2.56 years | |
c. | 8.02 years | |
d. | 1.56 years | |
e. | 9.01 years
|
Sam invests the amount of $22,750 in the bank today and, in addition, starting a year from today, she will invest an annual annuity of $21,950 for 17 consecutive years. Which of the following comes closest to the value of these investments at the end of year 17 if the interest rate is 11.1%?
a. | $712,554 | |
b. | $911,229 | |
c. | $614,569 | |
d. | $1,245,666 | |
e. | $1,122,159 |
Bryant Industries is a firm with $850 million in assets and no debt financing. The shareholders of Bryant have convinced the management to take advantage of the tax deductibility of debt interest payments by issuing $100 million in new debt at 9% interest, and using the $100 million proceeds from the debt to repurchases that same amount of equity. The corporate tax rate is 28%. What is the new value of Bryant after the debt issue?
a. | $850 million | |
b. | $912 million | |
c. | $878 million | |
d. | $750 million | |
e. | $712 million
|
Top Up is a levered firm with assets valued at $300,000, has $25,000 of debt issued at 7% interest, and 2,000 shares of stock outstanding. Suppose that corporate profits are subject to a tax rate of 25%. Which of the following comes closest to the earnings before interest and tax (EBIT) of Top Up if its earnings per share (EPS) is $0.50?
a. | $1,226 | |
b. | $1,753 | |
c. | $1,508 | |
d. | $3,083 | |
e. | $3,750 |
In class we held a discussion about a firm that was in financial distress, paid high property taxes, had a long term union contract with its workers, and was the defendant in a high profile lawsuit. In this example the firm was considering a project that had a small chance of a significant payout, but a large chance of returning zero. What was the justification of accepting the project and funding the project with new debt capital?
a. | Debt is a riskier form of capital compared with equity, so that the financing risk better matches the risk of the project. | |||||||||||||||||||||||||||||||
b. | Debt leads to better diversification for investors who wish to form medium sized portfolios. | |||||||||||||||||||||||||||||||
c. | Debt is easier to raise compared with equity, especially in this particular scenario. | |||||||||||||||||||||||||||||||
d. | Debt is tax deductible and firms with leverage pay less in tax compared with unlevered firms. | |||||||||||||||||||||||||||||||
e. | Debt pays a fixed rate of interest, such that the projects success would not have to be split with any new shareholders. Prime Moon, Corp. is currently unlevered with $100 million of assets. They plan to expand by tripling the size of the firm, with all capital coming in the form of debt. After this expansion, approximately what must the percentage fall in assets be before all the equity in the firm is wiped out?
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started