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Complete the following problems in either Microsoft Word or Excel.

Your work must be organized. Highlight your final answer. Chapter 14

14-2:

Here are book- and market-value balance sheets of the United Frypan Company (UF): Book Market

Net Working Capital $20 $40 Debt Net Working Capital $20 $40 Debt

Long-term asset $80 $60 Equity Long-term Assets $140 $120 Equity $100 $100 $160 $160 (The middle-of-the-road party was founded in 1961 by Miller and Modigliani, always referred to as “MM”, when they published a proof that dividend policy is irrelevant in a world without taxes, transaction costs, or other market imperfections. MM argued as follows. Suppose your firm has settled on its investment program. You have a plan to finance the investments with cash on hand, additional borrowing, and reinvestment of future earnings. Any surplus cash is to be paid out as dividends.) Assume that MM’s theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate.

a. How much of the firm’s value is accounted for by the debt-generated tax shield?

b. How much better off will UF’s shareholders be if the firm borrows $20 more and uses it to repurchase stock?

14-3:

What is the relative tax advantage of corporate debt if the corporate tax rate is Tc = .35, the personal tax rate is Tp = .35, but all equity income is received as capital gains and escapes tax entirely (TpE = 0)? How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 15%?

Chapter 15

15-1:

Calculate the weighted-average cost of capital…...

...FINC600 Week 1 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-1-assignment/ Assignment Instructions Complete the following problems in Microsoft Excel. Your work must be completed in the attached template. Chapter 1: 1-6, 1-8 Chapter 2: 2-9, 2-12Chapter 3: 3-3, 3-4 Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.Submit to Assignments by midnight ET, Day 7 (Sunday). 1-6 In most large corporations, ownership and management are separated. What are the main implications of this separation? 1-8 We can imagine the financial manager doing several things on behalf of the firm’s stockholders. For example, the manager might: a. Make shareholders as wealthy as possible by investing in real assets. b. Modify the firm’s investment plan to help shareholders achieve a particular time pattern of consumption. c. Choose high- or low-risk assets to match shareholders’ risk preferences. d. Help balance shareholders’ checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why? 2-9 A. The cost of an automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years? B. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you set aside today to cover these......

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...FINC600 Week 2 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-2-assignment/ Problem 4-10 Under what conditions does r, a stock's market capitalization rate, equal its earnings¬price ratio EPS1/P0? Problem 4-12 What is meant by the "horizon value" of a business? How can it be estimated? Problem 5-9 Respond to the following comments: a. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate." b. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk." Problem 5-16 Some people believe firmly, even passionately, that ranking projects on IRR is OK if each project's cash flows can be reinvested at the project's IRR. They also say that the NPV rule "assumes that cash flows are reinvested at the opportunity cost of capital." Think carefully about these statements. Are they true? Are they helpful? Problem 6-2 Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000/1.08 = $92,593 The inflation rate is 4%. Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate.......

Words: 303 - Pages: 2

...finc600 Week 3 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-3-assignment/ Problem 7-2 The following table shows the nominal returns on U.S. Stocks and the rate of inflation: Year Nominal Return (%) Inflation (%) 2004 12.5 3.3 2005 6.4 3.4 2006 15.8 2.5 2007 5.6 4.1 2008 -37.2 0.1 a) What was the standard deviation of the market returns? b) Calculate the average real return. m Problem 7-11 "Each of the following statements is dangerous or misleading. Explain why. a. A long-term United States government bond is always absolutely safe. b. All investors should prefer stocks to bonds because stocks offer higher long-run rates of return. c. The best practical forecast of future rates of return on the stock market is a 5- or 10-year average of historical returns. " Problem 8-6 Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 (p. 193) - also provided below. "a. Calculate the expected return from Dell. b. Find the highest expected return that is offered by one of these stocks. c. Find the lowest expected return that is offered by one of these stocks. d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%. e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%? " Problem......

Words: 338 - Pages: 2

...finc600 Week 5 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-5-assignment/ Problem 12-6 House of Herring plans to pay the entire dividend early in January 2016. All corporate and personal taxes were repealed in 2014. a. Other things equal, what will be House of Herring’s stock price after the planned dividend payout? b. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. What happens to the stock price on the announcement date? Assume that investors learn nothing about the company’s prospects from the announcement. How many shares will the company need to repurchase? c. Suppose the company increases dividends to $5.50 per share and then issues new shares to recoup the extra cash paid out as dividends. What happens to the ex-dividend share prices? How many shares will need to be issued? Again, assume investors learn nothing from the announcement about House of Herring’s prospects. Problem 12-12 Respond to the following comment: "It's all very well saying that I can sell shares to cover cash needs, but that may mean selling at the bottom of the market. If the company pays a regular cash dividend, investors avoid that risk." Problem 13-11 Executive Chalk is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds......

Words: 355 - Pages: 2

...finc600 Week 6 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-6-assignment-homework-problems/ Complete the following problems in either Microsoft Word or Excel. Your work must be organized. Highlight your final answer. Chapter 14 14-2: Here are book- and market-value balance sheets of the United Frypan Company (UF): Book Market Net Working Capital $20 $40 Debt Net Working Capital $20 $40 Debt Long-term asset $80 $60 Equity Long-term Assets $140 $120 Equity $100 $100 $160 $160 (The middle-of-the-road party was founded in 1961 by Miller and Modigliani, always referred to as “MM”, when they published a proof that dividend policy is irrelevant in a world without taxes, transaction costs, or other market imperfections. MM argued as follows. Suppose your firm has settled on its investment program. You have a plan to finance the investments with cash on hand, additional borrowing, and reinvestment of future earnings. Any surplus cash is to be paid out as dividends.) Assume that MM’s theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate. a. How much of the firm’s value is accounted for by the debt-generated tax shield? b. How much better off will UF’s shareholders be if the firm borrows $20 more and uses it to repurchase stock? 14-3: What is the relative......

Words: 455 - Pages: 2

...finc600 Week 7 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-7-assignment-homework-problems/ Instructions NAME: To complete the homework assignments in the templates provided: 1. The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases. 2. You will enter the required information into the shaded cells. 3. The cells are coded: a) T requires a text answer. Essay questions require references; use the textbook. b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary. c) F requires a number only. In some problems, a Step 1 is added to help you solve the problem. d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value). 4. Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7. Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer. Problem 18-2 Table 18.11 (p. 484 and also provided below) gives abbreviated balance sheets and income statements for Estee......

Words: 590 - Pages: 3

...FINC600 Week 1 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-1-assignment/ Assignment Instructions Complete the following problems in Microsoft Excel. Your work must be completed in the attached template. Chapter 1: 1-6, 1-8 Chapter 2: 2-9, 2-12Chapter 3: 3-3, 3-4 Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.Submit to Assignments by midnight ET, Day 7 (Sunday). 1-6 In most large corporations, ownership and management are separated. What are the main implications of this separation? 1-8 We can imagine the financial manager doing several things on behalf of the firm’s stockholders. For example, the manager might: a. Make shareholders as wealthy as possible by investing in real assets. b. Modify the firm’s investment plan to help shareholders achieve a particular time pattern of consumption. c. Choose high- or low-risk assets to match shareholders’ risk preferences. d. Help balance shareholders’ checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why? 2-9 A. The cost of an automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years? B. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you set aside today to cover these......

Words: 410 - Pages: 2

...FINC600 Week 2 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-2-assignment/ Problem 4-10 Under what conditions does r, a stock's market capitalization rate, equal its earnings¬price ratio EPS1/P0? Problem 4-12 What is meant by the "horizon value" of a business? How can it be estimated? Problem 5-9 Respond to the following comments: a. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate." b. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk." Problem 5-16 Some people believe firmly, even passionately, that ranking projects on IRR is OK if each project's cash flows can be reinvested at the project's IRR. They also say that the NPV rule "assumes that cash flows are reinvested at the opportunity cost of capital." Think carefully about these statements. Are they true? Are they helpful? Problem 6-2 Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000/1.08 = $92,593 The inflation rate is 4%. Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate.......

Words: 303 - Pages: 2

...finc600 Week 3 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-3-assignment/ Problem 7-2 The following table shows the nominal returns on U.S. Stocks and the rate of inflation: Year Nominal Return (%) Inflation (%) 2004 12.5 3.3 2005 6.4 3.4 2006 15.8 2.5 2007 5.6 4.1 2008 -37.2 0.1 a) What was the standard deviation of the market returns? b) Calculate the average real return. m Problem 7-11 "Each of the following statements is dangerous or misleading. Explain why. a. A long-term United States government bond is always absolutely safe. b. All investors should prefer stocks to bonds because stocks offer higher long-run rates of return. c. The best practical forecast of future rates of return on the stock market is a 5- or 10-year average of historical returns. " Problem 8-6 Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 (p. 193) - also provided below. "a. Calculate the expected return from Dell. b. Find the highest expected return that is offered by one of these stocks. c. Find the lowest expected return that is offered by one of these stocks. d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%. e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%? " Problem......

Words: 338 - Pages: 2

...finc600 Week 5 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-5-assignment/ Problem 12-6 House of Herring plans to pay the entire dividend early in January 2016. All corporate and personal taxes were repealed in 2014. a. Other things equal, what will be House of Herring’s stock price after the planned dividend payout? b. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. What happens to the stock price on the announcement date? Assume that investors learn nothing about the company’s prospects from the announcement. How many shares will the company need to repurchase? c. Suppose the company increases dividends to $5.50 per share and then issues new shares to recoup the extra cash paid out as dividends. What happens to the ex-dividend share prices? How many shares will need to be issued? Again, assume investors learn nothing from the announcement about House of Herring’s prospects. Problem 12-12 Respond to the following comment: "It's all very well saying that I can sell shares to cover cash needs, but that may mean selling at the bottom of the market. If the company pays a regular cash dividend, investors avoid that risk." Problem 13-11 Executive Chalk is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds......

Words: 355 - Pages: 2

...finc600 Week 6 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-6-assignment-homework-problems/ Complete the following problems in either Microsoft Word or Excel. Your work must be organized. Highlight your final answer. Chapter 14 14-2: Here are book- and market-value balance sheets of the United Frypan Company (UF): Book Market Net Working Capital $20 $40 Debt Net Working Capital $20 $40 Debt Long-term asset $80 $60 Equity Long-term Assets $140 $120 Equity $100 $100 $160 $160 (The middle-of-the-road party was founded in 1961 by Miller and Modigliani, always referred to as “MM”, when they published a proof that dividend policy is irrelevant in a world without taxes, transaction costs, or other market imperfections. MM argued as follows. Suppose your firm has settled on its investment program. You have a plan to finance the investments with cash on hand, additional borrowing, and reinvestment of future earnings. Any surplus cash is to be paid out as dividends.) Assume that MM’s theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate. a. How much of the firm’s value is accounted for by the debt-generated tax shield? b. How much better off will UF’s shareholders be if the firm borrows $20 more and uses it to repurchase stock? 14-3: What is the relative......

Words: 455 - Pages: 2

...finc600 Week 7 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-7-assignment-homework-problems/ Instructions NAME: To complete the homework assignments in the templates provided: 1. The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases. 2. You will enter the required information into the shaded cells. 3. The cells are coded: a) T requires a text answer. Essay questions require references; use the textbook. b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary. c) F requires a number only. In some problems, a Step 1 is added to help you solve the problem. d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value). 4. Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7. Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer. Problem 18-2 Table 18.11 (p. 484 and also provided below) gives abbreviated balance sheets and income statements for Estee......

Words: 590 - Pages: 3

...BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209 WEEK 6 HOMEWORK PROBLEMS To purchase this tutorial visit here: http://mindsblow.us/question_des/BSOP209WEEK6HOMEWORKPROBLEMS/196 contact us at: help@mindblows.us BSOP 209 WEEK 6 HOMEWORK PROBLEMS BSOP 209......

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...finc600 Week 5 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-5-assignment/ Problem 12-6 House of Herring plans to pay the entire dividend early in January 2016. All corporate and personal taxes were repealed in 2014. a. Other things equal, what will be House of Herring’s stock price after the planned dividend payout? b. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. What happens to the stock price on the announcement date? Assume that investors learn nothing about the company’s prospects from the announcement. How many shares will the company need to repurchase? c. Suppose the company increases dividends to $5.50 per share and then issues new shares to recoup the extra cash paid out as dividends. What happens to the ex-dividend share prices? How many shares will need to be issued? Again, assume investors learn nothing from the announcement about House of Herring’s prospects. Problem 12-12 Respond to the following comment: "It's all very well saying that I can sell shares to cover cash needs, but that may mean selling at the bottom of the market. If the company pays a regular cash dividend, investors avoid that risk." Problem 13-11 Executive Chalk is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds......

Words: 355 - Pages: 2

...finc600 Week 7 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-7-assignment-homework-problems/ Instructions NAME: To complete the homework assignments in the templates provided: 1. The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases. 2. You will enter the required information into the shaded cells. 3. The cells are coded: a) T requires a text answer. Essay questions require references; use the textbook. b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary. c) F requires a number only. In some problems, a Step 1 is added to help you solve the problem. d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value). 4. Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7. Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer. Problem 18-2 Table 18.11 (p. 484 and also provided below) gives abbreviated balance sheets and income statements for Estee......

Words: 590 - Pages: 3