Cooley Corporation has $20,000 that it plans to invest in marketable securities. It is choosing between MCI bonds which yield 10 percent, state of Colorado municipal bonds which yield 7 percent, and MCI preferred stock with a dividend yield of 8 percent. Cooley's corporate tax rate is 40 percent, and 70 percent of its dividends received are tax exempt. What is the after-tax rate of return on the highest yielding security? A. a. 7.04% B. b. 7.0% C. c. 8.43% D. d. 6.9% E. e. 6.0%
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Cooley Corporation has $20,000 that it plans to invest in marketable securities. It is choosing between MCI bonds which yield 10 percent, state of Colorado municipal bonds which yield 7 percent, and MCI
A. a. 7.04%
B. b. 7.0%
C. c. 8.43%
D. d. 6.9%
E. e. 6.0%
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- The total market value of the common stock of Company A is $12 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock is currently 1.20 and that the market risk premium is 7.5%. The Treasury bill rate is 2.5%. Assume for simplicity that Company A debt is risk-free. The Company's tax rate is 28% . a) What is the pre-tax cost of capital for Company A? b) What is the WACC for Company A ?The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a 7 percent yield; (b) corporate bonds at a 12 percent yield; or (c) preferred stock at an 8 percent yield. Omega Corporation is in a 35 percent tax bracket and the tax rate on dividends is 20 percent.a-1. Compute the aftertax yields for the three investment options. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) After Tax Yields % a. Treasury bonds b. Corporate bonds c. Preferred StockSolarcell Corporation has $20,000 that it plans to invest in marketable securities. It is choosing between AT&T bonds that yield 11%, State of Florida municipal bonds that yield 8%, and AT&T preferred stock with a dividend yield of 9%. Solarcell's corporate tax rate is 29.00 %, and 70% of the preferred stock dividends it receives are tax exempt. Assuming that the investments are equally risky and that Solarcell chooses strictly on the basis of after-tax returns, which security should be selected? Answer by giving the after-tax rate of return on the highest yielding security. a. 8.71% b.8.46% c. 7.56% Od. 6.41% .8.22%
- West Corporation has $50,000 that it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 9.00%; Exxon Mobil bonds yielding 10.60%; and GM preferred stock with a dividend yield of 9.80%. West's corporate tax rate is 25.00%. What is the after-tax return on the best investment alternative? Assume a 50.00% dividend exclusion for taxes on dividends. (Assume the company chooses on the basis of after-tax returns. Round your final answer to 3 decimal places.)Kelly Corporation is considering the issuance of either debt or preferred stock to finance the purchase of a facility costing P1.5 million. The interest rate on the debt is 16 percent. Preferred stock has a dividend rate of 12 percent. The tax rate is 46 percent. REQUIREMENTS: 1. What is the annual interest payment? 2. What is the annual dividend payment? 3. What is the required income before interest and taxes to satisfy the dividend requirement??The total market value of the common stock of the Okefenokee Real Estate Company is $11.5 million, and the total value of its debt is $7.5 million. The treasurer estimates that the beta of the stock is currently 1.8 and that the expected risk premium on the market is 7%. The Treasury bill rate is 3%. Assume for simplicity that Okefenokee debt is risk-free and the company does not pay tax. Suppose the company wants to diversify into the manufacture of rose-colored spectacles. The beta of unleveraged optical manufacturers is 1.05. Estimate the required return on Okefenokee's new venture. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
- Provisions of the U.S. Tax Code for Corporations and Individuals Which source of investor income is susceptible to double taxation? O Interest earned O Dividends The applicable tax rate for S corporations is based on the: O Stockholders' individual tax rates O Corporate tax rate Blue Hamster Manufacturing owns 154,000 shares in the Black Sheep Broadcasting Company. If Black Sheep Broadcasting has 200,000 shares of common stock outstanding, can Blue Hamster file a single income tax return that reports the incomes and expenses of both companies? O Yes, because Blue Hamster Manufacturing's ownership stake in Black Sheep Broadcasting is greater than or equal to 80%, as required by the U.S. Tax Code. O No, because Blue Hamster Manufacturing's ownership stake in Black Sheep Broadcasting is less than or equal to 79%, whereas 80% or more is required by the U.S. Tax Code. O No, because Blue Hamster Manufacturing's ownership stake in Black Sheep Broadcasting is less than or equal to 40%, whereas…The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a 10 percent yield; (b) corporate bonds at a 13 percent yield; or (c) preferred stock at an 11 percent yield. Omega Corporation is in a 35 percent tax bracket and the tax rate on dividends is 20 percent. a-1. Compute the aftertax yields for the three investment options. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Aftertax yields a. Treasury bonds b. Corporate bonds c. Preferred stock 6.50 % 8.45✔ % 10.23 X % a-2. Which one of the three investments should she select based on the aftertax yields? Preferred stock O Treasury bonds O Corporate bondThe Shrieves Corporation has $10,000 that it plans to invest in marketablesecurities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferredstock, with a dividend yield of 6%. The corporate tax rate is 35%, and 70% ofthe dividends received are tax exempt. Find the after-tax rates of return on allthree securities.
- The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a 6 percent yield; (b) corporate bonds at a 11 percent yield; or (c) preferred stock at an 8 percent yield, Omega Corporation is in a 40 percent tax bracket and the tax rate on dividends is 10 percent. a-1. Compute the aftertax yields for the three investment options. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. a. Treasury bonds b. Corporate bonds c. Preferred stock Treasury bonds Aftertax yields 3.60% a-2. Which one of the three investments should she select based on the aftertax yields? Preferred stock Corporate bond %You have been tasked with the responsibility of calculating the WACC for Meeks Investments Limited and Hall Developments Limited. The risk free rateis currently 4% and the market risk premium is 6.5%. The details for both companies are presented in the table below. the tax rate is 25%. MeeksInvestments Limited Hall Developments Limited Value of Common Equity $1,500,000 $3,000,000 Beta 2.18 1.52 Value of preferred Equity $1,000,000 $500,000 Preffered Dividends 4.50 $7.60 Priceof Preffered Stock $60 $80 Price of Bonds $970 $1,160 Coupon Rate (Paid semi- annually) 8% 11% par value of bonds $1,000 $1,000 years to Maturity 8 12 Value of Debt $2,500,000 $1,500,000 Use the information in the table above to calculate the WACC for both companiesArvo Corporation is trying to choose between three alternative investments. The three securities that the company is considering are as follows: Tax-free municipal bonds with a return of 9.30% Wooli Corporation bonds with a return of 12.90% CFI Corp. preferred stock with a return of 10.70%. The company's tax rate is 25.00%. What is the after - tax return on the best investment alternative? Assume a 50.00% dividend exclusion for taxes on dividends. (Round your final answer to 3 decimal places.) a. 9.363% b. 8.025% c. 11.288% d9.675% e. 9.300%