The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received? Question 20 New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market.
What is the rate of return on your account? 4. You opened an account to short sell 500 shares of Flipcorp. The initial margin requirement was 50%. A year later, the price of Flipcorp has risen from $30 to $40.
If sales outlook for the coming three years increases to 40,000,000, the recent increase in production will actually help B.E. company in transitioning to maximum production capacity. In this case, there are two options for the company; produce 35,000,000 in 2011 and use the 5,000,000 units in ending inventory to satisfy the total sales outlook then increasing production to the maximum of 40,000,000 units in the next two years or increase production to 40,000,000 units in the next three years and keep the extra 5,000,000 sitting in ending inventory. With either option, B.E. Company’s net income will increase tremendously due to a substantial increase in sales and very little inventory left in ending
First Round Capital proposed to invest $50,000 of equity capital into DLK, but on the condition that the investment firm be granted the right to elect five members to DLK’s board of directors. Discouraged by the “high cost” of external borrowing, Lacey decides to approach Kaylee and Doug. Lacey suggests to Kaylee and Doug that each of the three original investors contribute an additional $25,000 to DLK in exchange for five 20-year debentures. The debentures will be unsecured and subordinate to ACME’s debt. Annual interest on the debentures will accrue at a floating 5% premium over the prime rate.
Sales increased from 25,000 to 30,000 a) Based on this information, what is your best estimate of the price elasticity of demand? b) How valid is this procedure for estimating price elasticity of demand? When will it give reasonable estimates and when will it gives misleading one? c) Panasonic decided to hold the price of its 42” plasma TV at $3000. Their sales fell from 15,000 to 12,500.
Comparing the company’s net income to its actual cash generated, an investor can determine whether the company is more aggressive or conservative in accounting for its performance. 2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings? Year 1 - Free Cash Flow: 7,512,000; Accounting Profits Earned: 7,154,500 Year 2 - Free Cash Flow: 14,972,000; Accounting Profits Earned: 12,340,000 Year 3 - Free Cash Flow: 15,288,000; Accounting Profits Earned: 14,110,000 Year 4 - Free Cash Flow: 8,736,000; Accounting Profits Earned: 8,190,000 Year 5 - Free Cash Flow:
Tax savings + A.T. cost savings) each year [pic]2. What is the project’s NPV? Explain the economic rationale behind the NPV. Could the NPV of this particular project be different for GP Manufacturing than for one of Chino Material Systems Inc.’s other potential customers? Explain.
Statement of cash flows Balance sheet Statement of retained earnings Income statement As new capital budgeting projects arise, we must estimate__________. the cost of the loan for the specific project the cost of the stock being sold for the specific project when such projects will require cash flows the float costs for financing the project Will's Wheels, Inc. reported a debt-to-equity ratio of 0.65 times at the end of 2013. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have? $3.25 million $5 million $7.69 million $0.65 million Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements? Cash flow analysis Incremental cash flows Substitutionary analysis Pro forma analysis Which of these is the term for portfolios with the highest return possible for each risk level?
What advantage does buying stock on margin offer Victor? Under the following conditions the percentage earned by Victor is: 50.5% One advantage Victor has buying the stock on margin is that he will be able to use the borrowed funds to increase his percentage of return. 3. What would be the percentage returns if the sale prices had been $50 or $100? If the sale price was $50: The percentage of returns for Darin would be at a loss of -16.3% The percentage of returns for Victor would be at a loss of -31.8% If the sale price was $100: The percentage of returns for Darin would be at a gain of 66.1% The percentage or returns for Victor would be at a gain of 105.4% 4.
Valuation Questions Question 1 Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses of $320 million. (The corporate tax rate was 36%.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, rated AA (carrying a yield to maturity of 8%), trading at par (up from $3.8 billion at the end of 1992). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion.