MessagesFileEditView BuddiesWindow Help77%Wed 5-14 PMOpen with PreviewIMO 3162. jpegConsider a firm that has a 5% chance of a loss of 50 million dollars. If there is no loss,the firm will make 25 million dollars. Therefore, in the loss state, the firm will have anet loss of $25'million ($25m-$50m%3D-$25m). If the firm is taxed 40% on all earningsabove zero dollars, what is the most the firm would be willing to pay for insurance?O 3.73m3.33mO 3.53mO 3.93mneurons ond nerve endings reorronged into forest trols thatforever lead back to the legend that explains them.

Insurance: It is a contract in which an entity or an individual gets a claim for the loss incurred.

Consider a firm that has a 5% chance of a loss of 50 million dollars. If there is no loss, the firm will make 25 million dollars. Therefore, in the loss state, the firm will have a net loss of $25'million ($25m-$50m3-$425m). If the firm is taxed 40% on all earnings above zero dollars, what is the most the firm would be willing to pay for insurance? O 3.73m O 3.33m O 3.53m O 3.93m

Consider a firm that has a 5% chance of a loss of 50 million dollars. If there is no loss, the firm will make 25 million dollars. Therefore, in the loss state, the firm will have a net loss of $25'million ($25m-$50m3-$425m). If the firm is taxed 40% on all earnings above zero dollars, what is the most the firm would be willing to pay for insurance? O 3.73m O 3.33m O 3.53m O 3.93m

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you bought shares of a company for USD 10,000 last year, this year you sold it for USD 20,000. You are supposed to pay a 10% tax on capital gain. Explain the impact of a 100% inflation on the capital/gain profit you make.
MM Model with Zero Taxes An unlevered firm has a value of $575 million. An otherwise identical but levered firm has $200 million in debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. million
klp.1
Mr Price, has no debt outstanding and a total market value of R150,000. Earnings before interest and taxes [EBIT] are projected to be R14,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 30% higher. If there is a recession, then EBIT will be 60% lower. Mr Price is considering a R60,000 debt issue with a 5% interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,500 shares outstanding. Ignore taxes for this problem. Assuming that Mr Price goes through with recapitalization. Calculate the % changes in EPS when the economy expands
7
MM Model with Zero Taxes An unlevered firm has a value of $625 million. An otherwise identical but levered firm has $75 million in debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. LA million
5 1. The JJ. Binks Company is an all equity firm. It expects perpetual earnings before interest and taxes (EBIT) of $120 million per year. Its equity required return is 15%. The firm is subject to a 25% tax rate. a. Calculate the value of the un-levered JJ. Binks? b. The company considers leveraging as a way to increase the firm value. With leveraging it will face bankruptcy possibility at a cost of $60 million in exactly one year (Assume a 15% discount rate). The company plans to issue debt and buy back shares with the proceeds. It considers the following debt issuance: $50m, $75m , $100m, 125m, 150m and 175m. These debt levels will introduce an increasing probability financial distress of 5%, 10%, 20%, 30%, 50% and 70%, respectively. Evaluate the JJ. Binks optimal capital structure.
Helpp me plss
12 d out of Your firm has expected profit before interest and taxes of R1 600. Your unlevered cost of capital is 13 per cent and your tax rate is 34 per cent. You have debt with both a book and a face value of R2 500. This debt has an 8 per cent coupon and pays interest annually. What is your weighted average cost of capital?
Suppose a firm in the 40% federal-plus-state tax bracket needs to pay $1 in dividends to its shareholders. What is the pretax income it should have to pay this dividend? $1.00 $1.67
Ef 314.
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