Concept explainers
a
Case summary: H and B had $10,660 monetary assets, in the form of cash, savings accounts, and some small investments, they wanted to open a checking account and, determining their requirement it was recommended accordingly
Characters in the case: HJ and BJ.
Adequate Information: HJ and BJ has $10,660 in monetary assets. It is required to recommend them best checking and savings account that will enable them to effectively use the first and second tools of monetary asset management, use of
Savings and checking accounts have facility to withdraw money multiple times from the account and also earns interest, the funds used for day to day expenses can be deposited in these accounts which earns daily interest, and money market account, there are certain money market instruments such as Money market mutual funds which also has checking facility these type of instruments can be selected by HJ and BJ so that they can earn most of it.
To determine: Recommendations to J about the use of first and second tools of monetary asset management by selecting checking and savings accounts effectively.
Introduction:
Monetary asset management is the technique used to see that best possible interest is earned with lowest possible fees on funds that are available for day-to-day expenses, emergencies, savings, and investment opportunities. A best monetary asset management helps you to earn interest on your money while maintaining adequate liquidity and safety.
b
Case summary: H and B had $10,660 monetary assets, in the form of cash, savings accounts, and some small investments, they wanted to open a checking account and determining their requirement it was recommended accordingly
Characters in the case: HJ and BJ
Adequate Information: HJ and BJ have $10,660 in monetary assets. It is required to choose best checking and savings account that will help them to use the first and second tools of monetary asset management, money
Savings and checking accounts have facility to withdraw money multiple times from the account and also earns interest, the funds used for day to day expenses can be deposited in these accounts which earns daily interest, and money market account, there are certain money market instruments such as Money market mutual funds which also has checking facility these type of instruments can be selected by HJ and BJ so that they can earn most of it.
To determine: The recommendations for J regarding use of money market accounts.
Introduction:
Monetary asset management is the technique used to see that best possible interest is earned with lowest possible fees on funds that are available for day-to-day expenses, emergencies, savings, and investment opportunities. A best monetary asset management helps you to earn interest on your money while maintaining adequate liquidity and safety.
c
Case summary: H and B had $10,660 monetary assets, in the form of cash, savings accounts, and some small investments, they wanted to open a checking account and determining their requirement it was recommended accordingly
Characters in the case:HJ and BJ
Adequate Information: HJ and BJ has $10,660 in monetary assets. It is required to recommend them best checking and savings account that will enable them to effectively use the first and second tools of monetary asset management, use of money market account, and it is also required to advise them on resolving the disagreements in future.
Savings and checking accounts have facility to withdraw money multiple times from the account and also earns interest, the funds used for day to day expenses can be deposited in these accounts which earns daily interest, and money market account, there are certain money market instruments such as Money market mutual funds which also has checking facility these type of instruments can be selected by HJ and BJ so that they can earn most of it.
To determine: The savings instrument recommended for savings when the objective is to purchase new home.
Introduction:
Monetary asset management is the technique used to see that best possible interest is earned with lowest possible fees on funds that are available for day-to-day expenses, emergencies, savings, and investment opportunities. A best monetary asset management helps you to earn interest on your money while maintaining adequate liquidity and safety.
d
Case summary: H and B had $10,660 monetary assets, in the form of cash, savings accounts, and some small investments, they wanted to open a checking account and determining their requirement it was recommended accordingly
Characters in the case: HJ and BJ
Adequate Information: HJ and BJ has $10,660 in monetary assets. It is required to recommend them best checking and savings account that will enable them to effectively use the first and second tools of monetary asset management, use of money market account, and it is also required to advise them on resolving the disagreements in future.
Savings and checking accounts have facility to withdraw money multiple times from the account and also earns interest, the funds used for day to day expenses can be deposited in these accounts which earns daily interest, and money market account, there are certain money market instruments such as Money market mutual funds which also has checking facility these type of instruments can be selected by HJ and BJ so that they can earn most of it.
To determine: The amount they would have in the account after one year it J could put most of their money $10,660 in money market account.
Introduction:
Monetary asset management is the technique used to see that best possible interest is earned with lowest possible fees on funds that are available for day-to-day expenses, emergencies, savings, and investment opportunities. A best monetary asset management helps you to earn interest on your money while maintaining adequate liquidity and safety.
e
Case summary: H and B had $10,660 monetary assets, in the form of cash, savings accounts, and some small investments, they wanted to open a checking account and determining their requirement it was recommended accordingly
Characters in the case: HJ and BJ
Adequate Information: HJ and BJ has $10,660 in monetary assets. It is required to recommend them best checking and savings account that will enable them to effectively use the first and second tools of monetary asset management, use of money market account, and it is also required to advise them on resolving the disagreements in future.
Savings and checking accounts have facility to withdraw money multiple times from the account and also earns interest, the funds used for day to day expenses can be deposited in these accounts which earns daily interest, and money market account, there are certain money market instruments such as Money market mutual funds which also has checking facility these type of instruments can be selected by HJ and BJ so that they can earn most of it.
To determine: The way H and B can resolve and prevent disagreements in future.
Introduction:
Monetary asset management is the technique used to see that best possible interest is earned with lowest possible fees on funds that are available for day-to-day expenses, emergencies, savings, and investment opportunities. A best monetary asset management helps you to earn interest on your money while maintaining adequate liquidity and safety.
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Chapter 5 Solutions
Personal Finance Tax Update
- Moose Enterprises finds it is necessary to determine its marginal cost of capital. Moose’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) b. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 20 percent of the capital structure, but will all be in the form of new common stock, Kn.) d. The 9.6 percent cost of debt referred to earlier…arrow_forward7. Berkeley Farms wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans: Cost (aftertax) Weights Plan A Debt .................................. 4.0% 30% Preferred stock .................. 8.0 15 Common equity ................. 12.0 55 Plan B Debt .................................. 4.5% 40% Preferred stock .................. 8.5 15 Common equity ................. 13.0 45 Plan C Debt .................................. 5.0% 45% Preferred stock .................. 18.7 15 Common equity ................. 12.8 40 Plan D Debt .................................. 12.0% 50% Preferred stock .................. 19.2 15 Common equity ................. 14.5 35 a. Which of the four plans has the lowest weighted average cost of capital? Use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand.arrow_forwardNeed use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand. Delta Corporation has the following capital structure: Cost Weighted (after-tax) Weights Cost Debt 8.1% 35% 2.84% Preferred stock (Kp) 9.6 5 .48 Common equity (Ke) (retained earnings) 10.1 60 6.06 Weighted average cost of capital (Ka) 9.38% a. If the firm has $18…arrow_forward
- Delta Corporation has the following capital structure: Cost Weighted (after-tax) Weights Cost Debt 8.1% 35% 2.84% Preferred stock (Kp) 9.6 5 .48 Common equity (Ke) (retained earnings) 10.1 60 6.06 Weighted average cost of capital (Ka) 9.38% a. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? b. The 8.1 percent cost of…arrow_forwardDillon Enterprises has the following capDillon Enterprises has the following capital structure. Debt ........................ 40% Common equity ....... 60 The after-tax cost of debt is 6 percent, and the cost of common equity (in the form of retained earnings) is 13 percent. What is the firm’s weighted average cost of capital? a. An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the after-tax cost of debt is 7 percent, and the cost of common equity (in the form of retained earnings) is 15 percent. Recalculate the firm’s weighted average cost of capital. b. Which plan is optimal in terms of minimizing the weighted average cost of capital?arrow_forwardCompute Ke and Kn under the following circumstances: a. D1= $5, P0=$70, g=8%, F=$7 b. D1=$0.22, P0=$28, g=7%, F=2.50 c. E1 (earnings at the end of period one) = $7, payout ratio equals 40 percent, P0= $30, g=6%, F=$2,20. Note: D1 is the earnings times the payout rate. d. D0 (dividend at the beginning of the first period) = $6, growth rate for dividends and earnings (g)=7%, P0=$60, F=$3. You will need to calculate D1 (the dividend after the first period).arrow_forward
- Terrier Company is in a 45 percent tax bracket and has a bond outstanding that yields 11 percent to maturity. a. What is Terrier's after-tax cost of debt? b. Assume that the yield on the bond goes down by 1 percentage point, and due to tax reform, the corporate tax falls to 30 percent. What is Terrier's new aftertax cost of debt? c. Has the after-tax cost of debt gone up or down from part a to part b? Explain why.arrow_forwardThe Squeaks Cat Rescue, which is tax-exempt, issued debt last year at 9 percent to help finance a new animal shelter in Rocklin. a. If the rescue borrowed money this year, what would the after-tax cost of debt be, based on its cost last year and the 25 percent increase? b. If the receipts of the rescue were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the after-tax cost of debt be?arrow_forwardNo chatgptPlease don't answer i will give unhelpful all expert giving wrong answer he is giving answer with using incorrect values.arrow_forward
