Q: Your best taxable investment opportunity has an EAR of 4%. Your
Your best taxable investment opportunity has an EAR of 4%. Your best tax-free investment opportunity has an EAR of 3%. If your tax rate is 30%, which opportunity provides the higher after-tax interest...
See AnswerQ: Your uncle Fred just purchased a new boat. He brags to
Your uncle Fred just purchased a new boat. He brags to you about the low 7% interest rate (APR, monthly compounding) he obtained from the dealer. The rate is even lower than the rate he could have obt...
See AnswerQ: You are enrolling in an MBA program. To pay your tuition
You are enrolling in an MBA program. To pay your tuition, you can either take out a standard student loan (so the interest payments are not tax deductible) with an EAR of 51⁄2% or you can use a tax-de...
See AnswerQ: You are the CEO of a company and you are considering entering
You are the CEO of a company and you are considering entering into an agreement to have your company buy another company. You think the price might be too high, but you will be the CEO of the combined...
See AnswerQ: Your best friend consults you for investment advice. You learn that
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: A car loan with an outstanding balance of $5000 and a 4...
See AnswerQ: Suppose you have outstanding debt with an 8% interest rate that
Suppose you have outstanding debt with an 8% interest rate that can be repaid any time, and the interest rate on U.S. Treasuries is only 5%. You plan to repay your debt using any cash that you don’t i...
See AnswerQ: In the summer of 2008, at Heathrow Airport in London,
In the summer of 2008, at Heathrow Airport in London, Best of the best (BB), a private company, offered a lottery to win a Ferrari or 90,000 British pounds, equivalent at the time to about $180,000. B...
See AnswerQ: Your firm is considering the purchase of a new office phone system
Your firm is considering the purchase of a new office phone system. You can either pay $32,000 now, or $1000 per month for 36 months. a. Suppose your firm currently borrows at a rate of 6% per year (A...
See AnswerQ: After reading the Novy-Marx and Rauh article (see the
After reading the Novy-Marx and Rauh article (see the Common Mistake Box on page 161), you decide to compute the total obligation of the state you live in. After some research you determine that your...
See AnswerQ: You are considering moving your money to a new bank offering a
You are considering moving your money to a new bank offering a one-year CD that pays an 8% APR with monthly compounding. Your current bank’s manager offers to match the rate you have been offered. The...
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