FINANCE 402 FALL 2014 HOMEWORK #6 Due November 20‚ 2014 1. BMA Chapter 18 – Questions 12 and 21 at the end of the chapter on pages 468-469. Q12. Compute the present value of interest tax shields generated by these three debt issues Consider corporate taxes only. The marginal tax rate is 35%. a. $1000‚ one-year loan‚ at interest rate of 8% (tax shield) = (tc x i x D) = (0.35 x 0.08 x $1‚000) = $28 PV(tax shield) = $28/(1+i)^1 = $25.93 b. A five-year loan of $1000 at 8% interest rate.
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Problem 20-6 on Call Options based on Chapter 20 (Excel file included) You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly 3 months’ time. a. If the stock is trading at $55 in 3 months‚ what will be the payoff of the call? • Payoff-max=(50-s) = max (55-40)=15 the Ford owner will gain $15 b. If the stock is trading at $35 in 3 months‚ what will be the payoff of the call? • Payoff-max=(35-s) = max (35-40)=-5 the owners will gain $-5 c. Draw
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Term Final Exam Preparation (Note: This document includes practice examples from chapters covered only after the mid term. Your term final exam will be a comprehensive one and will include all chapters both before and after mid term exam.) FIN 300 Review: Basic Capital Budgeting Ch. 14: Calculating WACC Calculating the growth rate of dividends Ch. 15: Value of a right (including flotation) Dilution (three types) IPO underpricing (Winner’s Curse) Ch. 16: Indifference EBIT
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12 = 12% 10% 0.1 8% 0.9 12% 0.116 = 11.6% 20% 0.2 8% 0.8 12% 0.112 =11.2% 30% 0.3 8% 0.7 13% 0.115 =11.5% 40% 0.4 9% 0.6 14% 0.12 = 12% 50% 0.5 10% 0.5 15% 0.125 =12.5% 60% 0.6 12% 0.4 16% 0.136 = 13.6% b. Construct a pro forma balance sheet that indicates the firm’s optimal capital structure. Compare this balance sheet with the firm’s current balance sheet. What course of action should the firm take? Assets $100 Debt $? Equity $? Balance Sheet at Optimal Capital
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for media influences on pro social behaviour is exposure to pro-social behaviour. Kunkel et al found in a content analysis that two thirds of children’s programmes sampled contained at least one act of violence. However‚ despite the moral panic over the anti social content of popular television programmes‚ there is clear evidence of a comparable level of pro social content as well. Greenberg analysed popular children’s programmes in the US and found an equivalent number of pro-social and antisocial
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do not see finning sharks for soup as such a bad thing‚ (they kill people‚ you know?) sharks are still more beneficial to the marine environment than many think. Not only are shark populations drastically declining‚ the fins offer no taste to the soup- solely texture. Shark Fin Soup dates all the way back to the Sung Dynasty (968 AD) when an emperor invented the dish to express his power‚ wealth and generosity as he served it to his elite guests. Since‚ it is
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Company overview/ Statement of Problem Pro Clean LLC is an old-timer carpet cleaning business. It was owned and managed by Kevin Wilson and located in Knoxville‚ Tennessee. Wilson had to manage almost all functions of Pro Clean daily activities. In this industry‚ the problems Pro Clean faced are how to stay competitive and still make above average returns with one of his main competitor the King Rug. King Rug has a resolute business structure and is able to charge its customers with high prices
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Interpreting Financial Results FIN/571 Interpreting Financial Results When analyzing a business‚ financial statements provide a detailed look into the company and the success or failure which lies within in. Financial ratios are calculated to determine these numbers and to identify other number related variables that have an impact on the company and those investing in the business. Once determined they offer information concerning the businesses return on investment
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Standardised Testing Name: Institution: Abstract This paper explores two published books that touched on pros and cons of standardized testing in schools. Popham‚ (2001) and Sacks‚ (1999) suggest that through pros a student will have to pass certain tests to determine that he or she has acquired proficiency in various fields of study. According to the two authors‚ in cons the students who have mastery of the content‚ don’t show in the test; it mostly promotes teachers to teach tests and evaluate
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Week 5 Individual Assignment FIN 370 April 7‚ 2014 Problem: Firm A has $10‚000 in assets entirely financed with equity. Firm B also has $10‚000 in assets‚ but these assets are financed by $5‚000 in debt (with a 10 percent rate of interest) and $5‚000 in equity. Both firms sell 10‚000 units of output at $2.50 per unit. The variable costs of production are $1‚ and fixed production costs are $12‚000. (To ease the calculation‚ assume no income tax.) a) What is the operating income (EBIT) for
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