An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%
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An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%.
The following guidelines have been established:
- No more than 20% in municipal bonds
- Investment in growth stock fund should be greater than other three alternatives.
- At least 10% invested in treasury bills and municipal bonds
- Less should be invested in treasury bills and growth stocks than in CDs and municipal bonds by a ratio of 1.2 to 1.
- All $70,000 should be invested.
Formulate a model and solve it using computer. How should the $70,000 be allocated to each alternative to maximize annual return? What is the annual return?
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- An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%. The following guidelines have been established: No more than 20% in municipal bonds Investment in growth stock fund should be greater than other three alternatives. At least 10% invested in treasury bills and municipal bonds Less should be invested in treasury bills and growth stocks than in CDs and municipal bonds by a ratio of 1.2 to 1. All $70,000 should be invested. How should the $70,000 be allocated to each alternative to maximize annual return? What is the annual return?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%Dickson Corporation is comparing two different capital structures. Plan I would result in 26,000 shares of stock and $85,500 in debt. Plan II would result in 20,000 shares of stock and $256,500 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $95,000. The all-equity plan would result in 29,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) d-1. Assuming that the corporate tax rate is 22 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2…
- Coldstream Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $60,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Plan I $ Plan II $ All equity $ b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT Plan I and all-equity $ Plan II and all-equity $ c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT…Coldstream Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 percent. a. Assuming that the corporate tax rate is 40 percent, compare both of these plans to an all-equity plan assuming that EBIT will be $60,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Plan I $ Not attempted Plan II $ Not attempted All equity $ Not attempted d-2 Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT Plan I and all-equity $ Not attempted Plan II and all-equity $ Not attempted…Bellwood Corp. is comparing two different capital structures. Plan I would result in 24,000 shares of stock and $82,500 in debt. Plan II would result in 18,000 shares of stock and $247,500 in debt. The interest rate on the debt is 4 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $85,000. The all-equity plan would result in 27,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) d-1. Assuming that the corporate tax rate is 25 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your…
- Honeycutt Co. is comparing two different capital structures. Plan I would result in 38,000 shares of stock and $106,500 in debt. Plan II would result in 32,000 shares of stock and $319,500 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $155,000. The all-equity plan would result in 41,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)d-1. Assuming that the corporate tax rate is 24 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to…You are considering a stock investment in one of two firms (AllDebt, Inc., and AllEquity, Inc.), both of which operate in the same industry and have identical EBITDA of $15.5 million and operating income of $8.5 million. AllDebt, Inc., finances its $55 million in assets with $54 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Inc., finances its $55 million in assets with no debt and $55 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the income available to pay the asset—funders’ investment—(the debt holders and stockholders) and resulting return on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.) AllDebt AllEquity Income available for asset funders million million Return on asset-funders' investment % %You are considering a stock investment in one of two firms (NoEquity, Inc., and NoDebt, Inc.), both of which operate in the same industry and have identical EBITDA of $39.5 million and operating income of $14.5 million. NoEquity, Inc., finances its $50 million in assets with $49 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Inc., finances its $50 million in assets with no debt and $50 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the net income and return on assets—funders’ investments—for the two firms. (Enter your dollar answers in millions of dollars. Round "Net income" answers to 3 decimal places and "Return on assets" answers to 2 decimal places.) NoEquity. NoDebt Net income million million Return on assets % %
- Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt.3. Calculate the cost of preferred equity.4. Calculate the cost of…Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt.3. Calculate the cost of preferred equity.Simone's Sweets is an all-equity firm that has 11,200 shares of stock outstanding at a market price of $22 per share. The firm's management has decided to issue $116,000 worth of debt at an interest rate of 9 percent. The funds will be used to repurchase shares of the outstanding stock. What are the earnings per share at the break-even EBIT?