86 If a tax paying firm pays $100,000 in interest what is the after tax interest cost for firm assuming they are in a 40% tax bracket? a. 100,00 since interest is paid after taxes are paid and thus there is no tax shield b. 40,000 since there is a tax shield on interest c. 60,000 since there is a tax shield on inter
If a firm goes from zero debt to successively higher levels of debt, why would you expect its stock price to rise first, then hit a peak, and then begin to decline?
Joseph wants to deposit $1,500 at year-end for 35 years at 8%. What will his result be? If Joseph deposits $1,000 at the end of each year for the next 5 years at 8% compounded annually, $1,500 at the end of years 6-10 at 8% compounded annually, and $2,000 at the end of years 11-35 at 5% compounded annually, how much would he
Assume that the risk-free rate increases. What impact would this have on the cost of debt? What impact would it have on the cost of equity?
Benjamin O'Henry has owned and operated O'Henry's Data Services since its beginning ten years ago. From all appearances, the business has prospered. In the past few years, you have become friends with O'Henry and his wife. Recently, O'Henry mentioned that he has lost his zest for the business and would consider selling it for th
25 Multiple Choice Questions - Annuity, Sinking Fund, Loans, Bonds, Simple and Compound Interest, Geometric Sequence
1.Find the interest. Round to the nearest cent. $1280 at 12% for 9 months A) Interest = $17.07 B) Interest = $115.20 C) Interest = $1382.40 D) Interest = $11,520.00 2. Find the value. s 15,0.09 (Please refer to the attachments) A) 33.003 B) 40.472 C) 29.361 D) 26.019 3. Find the actual intere
In the following interest rate tree, solve for the risk-neutral probabilities at time 0 and time 0.5, using the equation: p=(dt/d½ - dt+1d)/(dt+1u-dt+1d), where d½ is the discount rate (DR) at time=t. In addition, what is the value at time 0 of an option that pays $1.35 at t=1 in the down-down state. t=0 t
I am trying to determine how to answer the following from the information and data I have completed within the problem. Question: On the basis of my findings, is the price of the debt with warrants to high or too low? Explain. Information The firm can borrow the full $3 million from Southern National Bank. The bank will c
Consider an investor who, on January 1, 2011, purchases a TIPS bond with an original principal of $100,000, an 8% annual (or 4% semiannual) coupon rate, and 10 years to maturity. a. If the semiannual inflation rate during the first six months is 0.3%, calculate the principal amount used to determine the first coupon payment
Please help with the following problem. Give the solution in an Excel spreadsheet. An individual has charged $13,573 on his or her credit card at an annual interest rate of 19.9% compounded monthly. Explain to him or her the difficulties that he or she can foresee in future years of interest getting out of control. Give 5-y
In a closed (no foreign sector), mixed economy with stable prices, if we assume that consumption (C) and investment (I) do not depend on the interest rate (r), can we conclude that: a. the IS curve is vertical? b. monetary policy has no effect on real income and output?
Money and Interest Rates Money and interest rates are important for individuals and businesses making decisions to finance purchases. The following articles deal with assessing conditions to finance purchases and important aspects of policy. Tom Woodruff has written an interesting and to-the-point article about effects of the
Determine how these companies could engage in an interest rate swap to decrease their cost of financing. What would you expect to happen to the spreads in the floating and fixed rate markets?
Assume that Company A has a fixed rate of 6.00% and a floating rate of LIBOR +1.40% and Company B has a fixed rate of 7.00% and a floating rate of LIBOR + 1.70%. Determine how these companies could engage in an interest rate swap to decrease their cost of financing. (Hint: you will need to assume an agreed upon rate that makes
You deposit $1000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years?
James Supply needs to borrow $150,000 for 6 months. Canada Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance. (Note: James currently maintains $0 on deposit in Canada Bank). Bills Finance Co. has offered to lend the funds at a 9% annual rate with discount-loan terms. The principal o
1. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, a) a loss should be recognized by the debtor. b)a gain should be recognized by the debtor. c)a new effective-interest rate must be com
Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today's marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be 5.5%. He has decided to use the rate of change in the Consumer Price Index as a proxy for the
Please review and help with the the following problem: The Verbrugge Publishing Company's 2007 balance sheet and income statement are as follows (in millions of dollars): 1. See attached word doc Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred w
I always find it amazing at how much money the credit card companies are able to make on the interest and fees. I look at the settlements that the credit card companies are able to do receiving only 40% of the balance. It shows how much they are able to make that they can afford to settle for a small percentage that is probabl
Please help with the following problem and show all the work so that I may fully understand the concept of the problem. You have been asked to forecast interest rates for the next 5 years. You have been given the following estimates: The risk free rate is expected to have a 30% of being 2%, a 20% chance of being 1.5%, a 20
A company wishes to set up a sinking fund in an account that pays 4.3% interest compounded quarterly to repay a debt of $325,000 within 4 years explain to the company how much its payment should be pay off its debt along with how much interest will be accrued during 4 years ? An organization has a $50,000 loan that is to be a
1. Which of the following statements about interest rate and reinvestment rate risk is correct? a. Variable rate securities have a high degree of interest rate risk. b. Price risk occurs because fixed-rate debt securities lose value when interest rates rise, while reinvestment rate risk is the risk of earning less than e
1) Suppose you are trying to find the present value of two different cash flows using the same interest rate for each. One cash flow is $1,000 ten years from now, the other $800 seven years from now. Which of the following is true about the discount factors used in these valuations? a. The discount factor for the cash flow
If the prime rate at the end of 1st, 2nd, 3rd, 4th, and 5th year turns out 6%, 6.5%, 7%, 7%, and 6.8%, respectively, what should be the effective interest payment (i.e. interest payment on $200 million loan plus net payment from interest rate swap contract) at the end of 2nd year?
As an assistant treasurer of a large corporation, your job is to look for ways your company can lock in its cost of borrowing in the financial market. The date is July 31. Your firm is taking out a loan of $200 million, with an annual interest rate of prime plus 5 percent and a maturity of 5 years. The current prime rate is 5
Study Aid: interest-based negotiations, stakeholder analysis and cultures that value relationship-building negotiation
1) Which of the following approaches is inconsistent with interest-based negotiation? a. Separating the people from the problem b. Identifying shared interests c. Fully exploring the problem d. "Low-balling" and "high-balling" opening efforts e. Inventing options for mutual gain 2) To maximize the potential for a succ
9. Marley Company received a seven-year, zero-interest-bearing note on February 22, 2008, in exchange for property it sold to O'Rear Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2008, 7.5% on Dec
Find the exact interest. Use 365 days in a year, and use the exact number of days in a month. Round to the nearest cent, if necessary.
1. Find the exact interest. Use 365 days in a year, and use the exact number of days in a month. Round to the nearest cent, if necessary. $1080 at 11 1/2% for 80 days A) $124.20 B) $27.22 C) $26.04---my answer D) $27.60 2. Find the sum of the first five terms of the geometric sequence. a = 5, r = 4 A) 1715 B
You are offered the opportunity to buy a note for $10,000. The note is certain to pay $2000 at the end of each of the next 10 years. If you buy the note, what rate of interest will you receive on this investment (to nearest %) a. 15% b. 100% c. 20% d. 16% e. insufficient information to compute
You have just taken out a 30 year, $120,000 mortgage on your new home. This mortgage is to be repaid in 360 equal monthly installments. If the stated (nominal) annual interest rate is 14.75 percent, what is the amount of the INTEREST portion of the FIRST monthly installment? a. $1,475 b. $1,472 c. $1,493 d. $17,700 e. insuf
Find a recent article related to the economic goals of the President of the United States or Congress. Do you think these goals are politically driven, or are they clearly in the best interest of the country? Explain your answer. Be sure to site your source and include the URL if taken from the Internet