ESSENTIALS OF INVESTMENTS>LL<+CONNECT
ESSENTIALS OF INVESTMENTS>LL<+CONNECT
11th Edition
ISBN: 9781264001026
Author: Bodie
Publisher: MCG
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Chapter 18, Problem 3PS
Summary Introduction

To determine:

To measure the relativeness of the internal rate of return with respect to geometric average (time-weighted return) or arithmetic average

Introduction:

Internal rate of return is proportionally related to arithmetic and geometric average but as a whole it is useful in measuring cash flows thereby reflecting investment performance quantitatively.

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Eccles Inc., a zero-growth firm, has an expected EBIT of $100.000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)? a. $475,875 b. $536,921 c. $587,750 d. $623,050 e. $564,167
Refer to the data for Eccles Inc. earlier. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)? a. $475,875 b. $536,921 c. $587,750 d. $623,050 O $564,167
Warren Supply Inc. wants to use debt and common equity for its capital budget of $800,000 in the coming year, but it will not issue any new common stock. It is forecasting an EPS of $3.00 on its 500,000 outstanding shares of stock and is committed to maintaining a $2.00 dividend per share. Given these constraints, what percentage of the capital budget must be financed with debt? a. 33.84% b. 37.50% c. 32.15% d. 30.54% e. 35.63%
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Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY