EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 37P
Your best friend consults you for investment advice. You learn that his tax rate is 35%, and he has the following current investments and debts:
- car loan with an outstanding balance of $5000 and a 4.8% APR (month y compounding)
- Credit cards with an outstanding balance of $10,000 and a 14.9% APR (monthly compounding)
- regular savings account with a $30,000 balance, paying a 5.50% EAR
money market savings account with a $100,000 balance, paying a 5.25% APR (daily compounding)- tax-deductible home equity loan with an outstanding balance of $25,000 and a 5.0% APR (monthly compounding)
- a. Which savings account pays a higher after-tax interest rate?
- b. Should your friend use his savings to pay off any of his outstanding debts? Explain.
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You plan to purchase a $200,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 7.25 percent, or a 15-year mortgage with a rate of 6.50 percent. You will make a down payment of 20 percent of the purchase price.
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Problem 2-21 Financial Statements
Use the following information for Ingersoll, Incorporated. Assume the tax rate is 23
percent.
2020
2021
Sales
Depreciation
$ 19,073
$17,436
1,811
1,886
Cost of goods sold
4,729
4,857
Other expenses
1,021
899
Interest
870
1,001
Cash
6,292
6,916
Accounts receivable
8,190 9,877
Short-term notes payable
1,320 1,297
Long-term debt
20,770 25,011
Net fixed assets
51,218 54,723
Accounts payable
4,624 5,094
Inventory
14,538
15,438
1,700 1,768
Dividends
Prepare a balance sheet for this company for 2020 and 2021. (Do not round
intermediate calculations.)
Cash
Assets
Accounts receivable
Inventory
INGERSOLL, INCORPORATED
Balance Sheet as of December 31
2020
2021
$
6,292 $
6,916
8,190
9,877
14,538
15,438
Drov
14 of 20
Ne
Chapter 5 Solutions
EBK CORPORATE FINANCE
Ch. 5.1 - Prob. 1CCCh. 5.1 - Prob. 2CCCh. 5.2 - How can you compute the outstanding balance on a...Ch. 5.2 - What is an amortizing loan?Ch. 5.3 - What is the difference between a nominal and real...Ch. 5.3 - How do investors expectations of future short-term...Ch. 5.4 - Prob. 1CCCh. 5.4 - How do taxes affect the interest earned on an...Ch. 5.5 - What is the opportunity cost of capital?Ch. 5.5 - Why do different interest rates exist, even in a...
Ch. 5 - Your bank is offering you an account that will pay...Ch. 5 - Which do you prefer: a bank account that pays 5%...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - You are considering moving your money to a new...Ch. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - You can earn 50 in interest on a 1000 deposit for...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - You have just sold your house for 1,000,000 in...Ch. 5 - Prob. 16PCh. 5 - Your mortgage has 25 years left, and has an APR of...Ch. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - The mortgage on your house is five years old. It...Ch. 5 - You have credit card debt of 25,000 that has an...Ch. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Suppose the term structure of risk-free interest...Ch. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Suppose the current one-year interest rate is 6%....Ch. 5 - Figure 5.4 shows that Johnson and Johnsons...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Your best friend consults you for investment...Ch. 5 - Suppose you have outstanding debt with an 8%...Ch. 5 - In the summer of 2008, at Heathrow Airport in...Ch. 5 - Your firm is considering the purchase of a new...Ch. 5 - Prob. 41P
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