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Value of the Interest Tax Shield

If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 30%.) $8.00 million $5.60 million $30.00 million $26.67 million If a firm permanently borrows $50 million at an interest rate of 10%, what

After Tax Earnings, Long Term Debt and Equity

1. A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. If the cost of capital is 10%, what is the net return on investment? 2. A firm has $100 million in current liabilities, $200 million in total long-term liabilities, $300 million in stockholder

Expected Rate of Return on Various Investments

What is the opportunity cost of capital for a risky project? Provide a definition. A three-year bond with 10% coupon rate and $1,000 face value yields 8%. Assuming annual coupon payments, calculate the price of the bond. A three-year bond has an 8.0% coupon rate and a $1,000 face value. If the yield to maturity on the bo

Gift Tax, Estate Tax and the Unified Crefitw

Completely answer the following questions Identify the features common to the gift tax formula and the estate tax formula. Explain why Congress felt it necessary to enact a gift tax to complement the estate tax. Describe the unified credit and the purpose it serves in the gift and estate tax.

Income Statements for a Corporation

Complete in Excel (LO3) Jack and Jill are owners of UpAHill, an S corporation. They own 25 and 75 percent, respectively. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above? Complete UpAHill's Form 1120S, Schedule K, for year 1. Complete Jill's

Joe's Fly-by-Night Oil: Financial analysis

See the attached file for data and answer the following questions: 12. What was Joe's NOPAT in 2013? 13. What was Joe's Free Cash Flow (FCF) in 2013? (Note: For this question, assume Joe obtained no new plant and equipment or additional net working capital in 2013. Thus his Net Investment in Operating Capital (NIOC) for

Cash Flow Decisions

What are the trade-offs involved in deciding the quantity of inventory the firm should carry? In what way does the cash manager face a similar trade-off?

Management Accounting in Business

1. What industries do you think will have higher financial slack? Why? 2. There are some companies out there that feel like the end is near so pay out a bunch of returns to investors in panic which is essence is financial slack. Do you think that the SEC can force them to pay that back? 3. If a company is well matured and in

Partnership Accounting Period and Method

Please help with the following problem: What options are available to an S Corporation for accounting period choices and accounting methods? Why would you select one versus other alternatives?

Senior Management Pay, Incompetent Management

1. We have heard a lot in the news how people feel upper management and executives are highly overpaid. Do you agree or do you feel that it is o.k. to pay high amounts of wages and bonuses to the top people? 2. Do you think that upper level management and executives are more likely to get fired in times of trouble for the compa

Sensitivity & Scenario Analysis

Waldo County, the well-known real estate developer, worked long hours, and he expected his staff to do the same. So George Chavez was not surprised to receive a call from the boss just as George was about to leave for a long summer's weekend. Mr. County's success had been built on a remarkable instinct for a good site. He wou

EVA, Computation of Income tax, ROI

1. The Modern Language Corporation earned $1.6 million on net assets of $20 million. The cost of capital is 11.5%. Calculate the net ROI and EVA. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter "EVA" answer in millions rounded to 1 decimal place.) ROI % EVA $ million

Profitability with Older Airplanes

New-model commercial airplanes are much more fuel-efficient than older models. How is it possible for airlines flying older models to make money when its competitors are flying newer planes? Explain briefly. I believe because the price of the older planes drop drastically when they are purchased in the second-hand market all

Over-Optimistic Projects

it is basically up to management to filter out the overoptimistic projects. Do you think that companies might be better served if they encouraged project sponsors to be more realistic? Is it even possible to rid the sponsor of their inherent favoritism to a project? Thoughts?

Threw Major Costs for Airlines; Older vs Newer Planes

New-model commercial airplanes are much more fuel-efficient than older models. How is it possible for airlines flying older models to make money when its competitors are flying newer planes. This could be explained by depreciation. Airlines flying older models are likely paying fewer taxes on depreciation. It's possible the old

Should Accounting Have to Approve Estimates?

Overoptimism by project sponsors. Inconsistent forecasts of industry and macroeconomic variables. Capital budgeting organized solely as a bottom-up process. Do you think that accounting should have to approve all estimates and hold management accountable for anything that doesn't seem right? Why or why not?

Relative Sales Value Method - Joint Costs

Radhika, Please help me with this problem as I am totally lost. Product M and S are joint products. The joint production cost of the products is $1500. That is, there are costs up to a certain point and we cannot divide the products before that point. M has a market value of $2000 at the split-off point. If M is furthe

Interest and Dividends

Between interest income and dividend income, which is best to receive from a tax perspective? Explain in detail your answer and your interpretation of the question.

Cost Recovery

What are the various cost recovery methods and how do they compare and contrast?

Accounting: Depreciation Questions

Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2011. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets via the double-declining balance method. What is the accumulated depreciation for this asset on December 31, 2012? A. $4,400 B.