PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 11, Problem 21PS
Summary Introduction

To discuss: Reason of flying older models makes money while competitors are flying newer planes.

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After-tax cost of debt Personal Finance Problem Bella Wans is interested in buying a new motorcycle. She has decided to borrow the money to pay the $20,000 purchase price of the bike. She is in the 35% income tax bracket. She can either borrow the money at an interest rate of 4% from the motorcycle dealer, or she could take out a second mortgage on her home. That mortgage would come with an interest rate of 9%. Interest payments on the mortgage would be tax deductible for Bella, but interest payments on the loan from the motorcycle dealer could not be deducted on Bella's federal tax return. a. Calculate the after-tax cost of borrowing from the motorcycle dealership. b. Calculate the after-tax cost of borrowing through a second mortgage on Rella's home a. The after-tax cost of borrowing from the motorcycle dealership is %. (Round to the nearest whole percentage.) b. The after-tax cost of borrowing through a second mortgage is %. (Round to two decimal places.) c. Which source of…
Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm's capital structure targets the following proportions: debt, 53%; preferred stock, 17%; and common stock, 30%. If the cost of debt is 7.2%, preferred stock costs 9.4%, and common stock costs 11.3%, what is Oxy's weighted average cost of capital (WACC)? Oxy's weighted average cost of capital (WACC) is %. (Round to two decimal places.)
NPV Calculate the net present value (NPV) for a 20-year project with an initial investment of $40,000 and a cash inflow of $6,000 per year. The cost of capital is 13%. Comment on the acceptability of the project. The project's net present value is $ (Round to the nearest cent.) Is the project acceptable? (Select the best answer below.) ○ Yes Ο No
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