Mantle Corporation is considering two equally risky investments: ∙ A $5,000 investment in preferred stock that yields 6.75%. ∙ A $5,000 investment in a corporate bond that yields 10.00%. What is the breakeven corporate tax rate that makes the company indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.) a. 50.13% b. 40.75% c. 46.87% d. 37.08% e. 34.23% 2. Wie Corp's sales last year were $280,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? Do not round your intermediate calculations. a. $238,333 b. $193,050 c. $178,750 d. $250,250 e. $259,783
Mantle Corporation is considering two equally risky investments: ∙ A $5,000 investment in preferred stock that yields 6.75%. ∙ A $5,000 investment in a corporate bond that yields 10.00%. What is the breakeven corporate tax rate that makes the company indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.) a. 50.13% b. 40.75% c. 46.87% d. 37.08% e. 34.23% 2. Wie Corp's sales last year were $280,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? Do not round your intermediate calculations. a. $238,333 b. $193,050 c. $178,750 d. $250,250 e. $259,783
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Please answer both questions 1 and 2 and show working.
1. Mantle Corporation is considering two equally risky investments:
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| ∙ A $5,000 investment in a corporate bond that yields 10.00%. |
What is the breakeven corporate tax rate that makes the company indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.)
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2. Wie Corp's sales last year were $280,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? Do not round your intermediate calculations.
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