Questions from Corporate Finance

Q: In 2006 agency bonds sold at a yield of 5.32

In 2006 agency bonds sold at a yield of 5.32%, while high-grade tax-exempts of comparable maturity offered 3.7% annually. If an investor receives the same after-tax return from corporates and tax-exem...

Q: The IRS prohibits companies from borrowing money to buy tax-exempts

The IRS prohibits companies from borrowing money to buy tax-exempts and deducting the interest payments on the borrowing from taxable income. Should the IRS prohibit such activity? If it didn’t, would...

Q: Suppose you are a wealthy individual paying 35% tax on income

Suppose you are a wealthy individual paying 35% tax on income. What is the expected after-tax yield on each of the following investments? a. A municipal note yielding 7.0% pretax. b. A Treasury bill...

Q: Reliant Umbrellas has been approached by Plumpton Variety Stores of Nevada.

Reliant Umbrellas has been approached by Plumpton Variety Stores of Nevada. Plumpton has expressed interest in an initial purchase of 5,000 umbrellas at $10 each on Reliant’s standard terms of 2/30, n...

Q: Galenic, Inc., is a wholesaler for a range of pharmaceutical

Galenic, Inc., is a wholesaler for a range of pharmaceutical products. Before deducting any losses from bad debts, Galenic operates on a profit margin of 5%. For a long time the firm has employed a nu...

Q: What are the trade-offs involved in the decision of how

What are the trade-offs involved in the decision of how much inventory the firm should carry?

Q: Large businesses spend millions of dollars annually on insurance. Why?

Large businesses spend millions of dollars annually on insurance. Why? Should they insure against all risks or does insurance make more sense for some risks than others?

Q: Company X sells on a 1/30, net 60 basis

Company X sells on a 1/30, net 60 basis. Customer Y buys goods invoiced at $1,000. a. How much can Y deduct from the bill if Y pays on day 30? b. What is the effective annual rate of interest if Y p...

Q: Look back at Section 30-2. Cast Iron’s costs have

Look back at Section 30-2. Cast Iron’s costs have increased from $1,000 to $1,050. Assuming there is no possibility of repeat orders, answer the following: a. When should Cast Iron grant or refuse cre...

Q: Consider three securities: a. A floating-rate bond

Consider three securities: a. A floating-rate bond b. A preferred share paying a fixed dividend c. A floating-rate preferred If you were responsible for short-term investment of your firm’s excess...