Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 7, Problem 9FPE
Calculating and comparing add-on and simple interest loans. Eli Nelson is borrowing $10,000 for five years at 7 percent. Payments, which are made on a monthly basis, are determined using the add-on method.
- a. How much total interest will Eli pay on the loan if it is held for the full five-year term?
- b. What are Eli’s monthly payments?
- c. How much higher are the monthly payments under the add-on method than under the simple interest method?
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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
Chapter 7 Solutions
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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