Which is not a benefit of debt to the corporation? a. interest payments are tax deductible b. when debt is used heavily, it increases stock value c. In periods of inflation, debt is paid back with amounts that are worth less than the ones borrowed. d. compared to equity, debts have a lower cost of capital e. answer not given
Q: Which one of the following represents the highest effective interest rate per year
A: Effective interest rate is different from the annual percentage rate. This is because effective…
Q: Teduie company bought a new model of motor for its electric power generating plant in 2017. The…
A: In order to determine whether the the investment is worthwhile or not we need to calculate the Net…
Q: Globex Corporation plc shares are currently trading at $5.00 each. Management wishes to raise…
A: Ex-Rights Share price: It is the market value that a stock will hypothetically have following a new…
Q: identify at least three positives and three negatives about the loan request
A: Loan Application: The document on which the lender bases its loan decision. A loan application is…
Q: The following information was available for Concord Company at December 31, 2020: beginning…
A: Inventory turnover = cost of goods sold/Average inventory
Q: Do you believe that elections have an impact on a country's Investments market (stocks, bonds,…
A: A share of ownership in a firm or corporation is referred to as stock. When a firm does well, stock…
Q: Find the future values of the following ordinary annuities. FV of $600 each 6 months for 8 years at…
A: Annuities are series of regular payments made in each period. An ordinary annuity is that annuity in…
Q: he value of your investment increased by 9.77% last year, and your purchasing power decreased by…
A: Inflation is a situation of general increase in prices. Inflation leads to decrease in purchasing…
Q: Develop a good contingency plan to each of the following situations: 1. If a major competitor…
A: Answering the first 3 sub-questions as per Bartleby Guidelines: 1. If a major competitor withdraws…
Q: .A bank offers a 272- day discounted loan at a simple discount rate of 12%. (a) How much money would…
A: The discount on loan is given and that discount on loan is the interest being charged on the loan…
Q: ex is at £411.79. Find the intrinsic value and the time valı
A: The price of options have two components one is intrinsic value and other is time value of option…
Q: Liam was offered by AMS bank and TML bank with the following conditions: AMS BANK offers him Php…
A: AMS Banks's Offer Payment (Lumpsum) PHP 88,000.00 Time Period 2 Payment (Lumpsum)…
Q: Assume the Black-Scholes framework holds. Consider an option on a stock. You are given the following…
A: Here, Stock Price is 50 Option Price is 3.00 Option Delta is 0.611 Option Gamma is 0.020 Option…
Q: The Tech company. Inc. is currently making windfall profits from the sales of financial programming…
A: "Hi, Thanks for the Question. Since you asked multiple sub parts question, as per authoring…
Q: Bookaccino’s Plc wants to acquire Book Cellar Plc. Shares in Bookaccino’s are currently trading at…
A: When one company purchases the majority or all of the shares of another, it gains control of the…
Q: a) Let's say you invest $10,000 into each account. What is the final amount after 10 years? b) How…
A: Future Value: It represents the future worth of the present amount and is estimated by compounding…
Q: Coronary artery bypass grafting DRG price is $31,329. If the hospital agreed to a payment of $35,000…
A: To calculate the interest rate we will use time value of money concept as follows: Interest rate =…
Q: A construction management company is examining its cash flow requirements for the next few years.…
A: Future Value: The future value is the amount that will be received at the end of a certain period.…
Q: Question 9 Abnormal earnings are O net income adjusted for a capital charge computed as the…
A: An earnings of the company are defined as the after tax the net income. Basically, they are the…
Q: A & B D. Consider a port folio of E CRA) : 207. E CR): 30% 2. assets where nsky = 10% A,B :20% hnd…
A: Solution:- Minimum Variance Portfolio is that portfolio in which the weights of securities are such…
Q: The following data are gathered: · The real risk-free rate is 1.05% · Inflation premium…
A: Treasury Bills: T-bills are the treasury bills issued by the government. These bills are risk-free…
Q: Two mutually exclusive alternatives are being considered for the environmental protection equipment…
A: Annual Worth: It is the equivalent uniform yearly worth of all estimated receipts and costs…
Q: Company XYZ declared a dividend of Php 19,773,000 for its common stock. Suppose there are 42,504…
A: The Dividend is the profit that is paid out to the shareholders by the firms out of the current…
Q: Assume your goal in life is to retire with one million dollars. How much would you need to save at…
A: To calculate the annual saving amount we will use future value of annuity formula as follows…
Q: You have 100,000$ saving that is very important for you. You want to invest it for the next two…
A: Here, Discount Rate = 1% Savings = $100,000 To Find: NPV percentage of returns for selecting a…
Q: What is the change in price the bond will experience in dollars?
A: Bond Price: It represents the current value of the bond and is estimated by discounting the coupon…
Q: 1) The financial management decisions can be classified into four basic kinds, Investment Decisions,…
A: Financial decision are divided into 3 main types 1) Investment Decisions 2) Financing Decisions 3)…
Q: (b) Calculate the effective interest rate paid by Vri.com and Xadine in the following swap. Vri.com:…
A: Interest Swapping- Under this a person who is taking loan at fixed rate wants to changed it into…
Q: 1) The finance manager is required to look into the financial implications of every decision in the…
A: True. The financial manager has to look into every decision that has financial consequences. He/she…
Q: Rianna is 60 years old. She purchased a deferred annuity for $40,000. The annuity will begin paying…
A: Data given: Deferred annuity = $40,000 Monthly payment =$400 Expected return multiple =20…
Q: 3. A project requires an initial investment of $1,000,000 and generates annual income of $300,000…
A: Present Worth Method: Cash flows of every elective will be decreased to time zero by assuming an…
Q: 1) If you deposit $4,000 today in a bank account and the interest is compounded annually at 10…
A: Time value of money (TVM) refers to the method used to measure the amount of money at different…
Q: u observe the following information regarding Company ABC and Company XYZ: · Company ABC has a…
A: The standard deviation show risk related to the company and beta show the risk related to the…
Q: y a dividend each year in the future of 40 and has a current price of 1000. Assuming Shiller’s…
A: The required rate on the stock depends on the dividend paid and corresponding price of stock…
Q: National Co.’s stock sells for P35 that recently paid a P5 dividend. The growth rate will remain the…
A: As per formula Cost of newly issued equity = [D0*(1+g)/(P0-F)]+g Where D0 - Recent dividend i.e. P5…
Q: (3) What are the basic steps in risk manaqement? Briefly describe each.
A: In finance we make investments and manage our money with the objective of generating a return.…
Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…
A: Net operating profit = P300,000 Before tax cost of debt (Kd) = 0.06 Cost of equity (Ke) = 0.15…
Q: 1. Graph investors' long-term expected inflation rate since 2003 by subtracting from the 10-year…
A: A financial crisis is any of a number of scenarios in which the nominal value of some financial…
Q: Use the following table: Present Value of an Annuity of 1 Period…
A: Concept. IRR ( internal rate of return) Internal rate of return is method of calculating investments…
Q: a. Outline the three main forms of business organisation and critically discuss the benefits and…
A: Thanks for Questions “Since you have asked multiple question, we will solve the first question for…
Q: Find the interest eaned on $10,000 invested for 4 years at 6% interest compounded as follows. a.…
A: Compound Interest: It refers to the interest earned on an investment or paid on loan and is…
Q: Larry wants to make a decision on a six- year amortied loan for him to buy a new car. The value of…
A: A loan is an agreement where an amount is forwarded in return for periodic payments which cover the…
Q: The type of the risk that can be eliminated by diversification is called
A: the type of the risk that can be eliminated by diversification is called
Q: The management of ProdPharm.inc has decided to increase the production capacity of its factory by…
A: The real interest rate is the actual rate that an investment earns taking into account the frequency…
Q: GetAHead plc manufactures hats. The company has just paid a dividend of £0.20 per share and…
A: The Dividend Growth Model refers to a model that helps in calculating the intrinsic value of a stock…
Q: Rho Ltd. has just paid a dividend of $0.25 on its stock. They expect dividends to grow at a rate of…
A: Dividend = $0.25 The growth rate for first two years = 6% Growth rate thereafter = 3% Required rate…
Q: (b) Consider the following two financial assets: (1) an ordinary share that is expected to pay a…
A: The dividend discount model states that we can find out the price of a stock based on the present…
Q: If a firm has an inventory turnover of 15, the firm
A: Inventory turnover is an important financial ratio. It is used to assess the efficiency with which a…
Q: rate is 1,000,000 vehicles. Determine public project is justified (i=5%). O The project is justified…
A: The net present value of the project that is difference between the present value of cash flow and…
Q: The FC of a bridge is 200 M, annual malntenace cost is 200,000 and cost of bridge rehabilitation is…
A: Capitalized cost is the present value of all cost that are likely to occur during the life of…
Which is not a benefit of debt to the corporation?
a. interest payments are tax deductible
b. when debt is used heavily, it increases stock value
c. In periods of inflation, debt is paid back with amounts that are worth less than the ones borrowed.
d. compared to equity, debts have a lower cost of capital
e. answer not given
Step by step
Solved in 2 steps
- Which of the following is CORRECT? Select one: a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation. b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM. d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. e. All of the above are correct. Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must…Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bond interest payments reduce total taxes paid. b. Bonds do not affect owner control. c. A company earns a lower return with borrowed funds than it pays in interest. d. A company earns a higher return with borrowed funds than it pays in interest. e. Bonds require payment of periodic interest. f. Interest on bonds is tax deductible.Q ) If the corporate income tax rate were to increase, then the use of debt will become more desirable in terms of increasing ROE. (All else equal.) a - True b - False
- While computing the cost of equity using the formula, r = D1 +g, we do not make PO any adjustment to express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly.While computing the cost of equity using the formula , rs=D1P0+grs=D1P0+g, we do not make any adjustment to express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so?Which of the following will increase the WACC for a tax-paying company? Decrease the proportion of equity financing Decrease the proportion of debt financing Decrease the market value of the equity Increase the market value of the debt
- There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the companyWhy does issuing debt result in an income tax advantage when compared to issuing equity?Why do we use an after-tax figure for the cost of debt but not for the cost of equity? Explain yourreasoning and show your workings.
- Why is it important to include the tax effect into cost of capital computations for firms with debt financing? Multiple Choice taxable income is reduced by the amount of the interest expense. taxes are paid on interest but not on dividends. firms pay taxes on the outstanding principal amount of the debt. comparisons with equity financing would otherwise not be possible.When one uses the after-tax weighted average cost of capital (WACC) to value a levered firm, the interest tax shield is: Multiple Choice A) capitalized by the levered cost of equity. B) not accounted for by the use of the WACC. C) automatically considered because the after-tax cost of debt is included within the WACC formula. D) considered by deducting the interest payment from the cash flows.Ques) Explain the contention that in the absence of the tax advantages of debt the use of gearing can increase the expected rate of return for shareholders, but not necessarily increase the value of their investment