Week 2 Chapter 3 Homework 1. Which of the following statements is CORRECT? Answer: e. An increase in a firm’s debt ratio, with no changes in sales or operating cost, could be expected to lower the profit margin. 2. Companies HD and LD have the same tax rate, sales, total assets, and basic earning power.
Fin 517 Ch. 15 Notes Debt and Taxes 15.1 The Interest Tax Deduction 1. interest tax shield – additional amount that a firm would have paid in taxes if it did not have leverage. Interest tax shield = corporate tax return X interest payments 2. because interest expense is tax deductible, leverage increases the total amount of income available to all investors 15.2 Valuing the Interest Tax Shield 1. when a firm uses debt, the interest tax shield provides a corporate tax benefit each year. 2. Because the cash flows of the levered firm are equal to the sum of the cash flows from the unlevered firm plus the interest tax shield, by the Law of One Price the same must be true for the present values of these cash flows.
In order to use the constant growth model, we must assume that the dividends will grow at a constant rate and they must continue forever. There is also an assumption that the required return on common equity must be greater than the expected growth rate of the dividend. The constant growth model is probably the most used model in practice, however, not many “real world” stocks will satisfy all the assumptions. It is still a good estimate of the price. 2.
The changes in the government’s macroeconomic objectives depends on where we are on the AS curve as shown below. If we are on the horizontal part of the AS curve, we will experience economic growth (from Y1 to Y2) without an increase in inflation so our competitiveness in the global market will remain the same so our trade deficit could improve. However, if we are on the curved part of the AS curve, we will have an increase in economic growth and there will be a demand pull inflation from P1 to P2. If we are at the vertical part of the AS curve, inflation will get higher but our economic growth remains the same as we have reached full productive
Financial Analysis * The tax rate is approximately 30% 5.618.8=29.79% 5.418.1=29.83% 5.418=30% * Based on the industry average, a sports store of similar size should be making around $21000 or 67% more profitable than Rhodes’ store. * Assuming the lots are of the same size and bear the same tax burden, if the unused lot is sold off property taxes would be reduced by $6000 at the 2008 rate. All else being equal, this would increase net profit by 6000×0.30=$1800, for a total of $14400. Profit as a percentage of sales would increase from 2.1% to 2.4%. * Of the $18400 Rhodes made in mortgage payments last year, $8000 was interest.
1: Tariffs encourage Americans to buy U.S.-made products. (Points: 13) I find this position to be valid. Tariffs are basically taxes on imports, thus making imported goods more expensive to buy (Nickels, McHugh & McHugh, 2008, p. 75). Protective tariffs are designed to raise the retail price of imported products so that domestic goods are more competitively priced (Nickels, McHugh & McHugh, 2008, p. 76). Therefore, if when a consumer enters a store and sees similarly priced products, one imported and one made domestically, they can choose a US made product without feeling as if they are overpaying for the same product.
The value assigned to cost of goods sold if Niles uses FIFO is a. $290. b. $276. c. $862.
The student’s decision saves $811,249 by the first quarter that is well over target. This reduces the working capital shortfall and enables EHC to increase patient volume. The next decision to make is to decide between two loan options. The student selects loan option two that has a six-month total interest payment of $53,873 over option one that has a six-month total interest for $56, 589. Option two is the choice because the $2,716 savings difference in total interest from option two outweighs the $1,043 in interest savings from option one.
6 – Opinion It is my opinion that using the customer’s credit balance is a good way to predict their annual income. Based off the data from the model we can see that as the credit balance increases so does the income level of the customer. The higher the income level the more the customer is willing to buy items on credit because they have the financial means to pay the minimum monthly premiums. 7 - 95% confidence interval for beta-1 0.011926-2.010(0.001289) = 0.00934 0.011926+2.010(0.001289) = 0.01452 95% CI = (0.00934, 0.01452) 8/9 – CI and PI for $4,000 credit balance Predicted Values for New Observations New Obs Fit SE Fit 95% CI 95% PI 1 44.19 1.21 (41.77, 46.61) (27.11, 61.27) Values of Predictors for New Observations
First is GDP, or Gross Domestic Product. This measures everything that a country produces in a year. Second is real GDP, which removes the effect of price changes. This is a more accurate measurement of the country's actual output, because it removes the impact of inflation. This makes it the best way to compare the GDP for any year to prior years.