Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Market Efficiency
Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing t…
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A firm's stock is selling for $71. The next annual dividend is expected to be $2.00. The growth rate is 13%. The flotation cost is $7. What is the cost of retained earnings? (Round your answer to 2 decimal places.) Multiple Choice 15.82% 17.27% 13.67% 14.47%
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Transcribed Image Text:A firm's stock is selling for $71. The next annual dividend is expected to be $2.00. The growth rate is 13%. The flotation cost is $7. What is the cost of retained earnings? (Round your answer to 2 decimal places.) Multiple Choice 15.82% 17.27% 13.67% 14.47%
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 12 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 10 percent higher; that is, firms that paid 14 percent for debt last year will be paying 15.40 percent this year. a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 10 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt % b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the aftertax cost of debt be? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt %
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Transcribed Image Text:The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 12 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 10 percent higher; that is, firms that paid 14 percent for debt last year will be paying 15.40 percent this year. a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 10 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt % b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the aftertax cost of debt be? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt %
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Step 2 Calculation of Cost of Retained Earnings
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Step 3 (a) Calculation of rate of tax applicable
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Step 4 Calculation of after tax cost of debt
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Step 5 (b) After tax cost of debt (if tax rate applicable is 25%)
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