Chapter Questions Financial Management

Chapter Questions 2.1 An investor recently purchased a incarnate stick around that yields 9%. The investor is in the 36% feature federal and state taxation bracket. What is the bonds aft(prenominal) tax yield? The overstep on many investments including corpo localise bonds is often called yield. To calculate the after tax yield we need to multiply the pretax yield by the combined federal and state tax bracket data. This gives us the balance of the pretax yield that will go to taxes. After subtracting this modus operandi from the pretax data we get the after tax (http://www.ehow.com/how_5016879_calculate-after-tax-yield.html#ixzz1o72GKTlZ). For this particular prototype we prolong 9% pretax yield and 36% combined taxes .09 x .36 = .0324 (3%) .09-.0324 = .0576 (6%) 2.2The aim of fortune involving repayment of a debt determines the interest set of a bond. Because of its tax exemptions municipal bonds tend to have a higher(prenominal) yield on investment than do embod ied bonds (http://www.e-personalfinance.com/types-of-bonds/municipal-bonds-vs-corporate-bonds). In this particular case municipal bonds are of equal riskiness and yield 6%. An investor would prefer a rate that equals the municipal yield to the corporate after tax yield. 8% corporate yield 6% municipal yield After tax income Yield = ratable Interest Rate × (1 tax rate) (http://allfinancialmatters.

com/2006/10/20/how-to-calculate-tax-equivalent-yield/) 8% (1-tax rate) = after tax yield (6%) 8(8-tax rate) = 6 2= 8Tax rate Tax rate = 2/8 = .25 2.5 Kendall Corners Inc recently reported net income of $ 3.1 one thousand thousand, and dispraise of $500,000. What was its net currency watercourse? Assume it had no amortization ! expense. In regularize to calculate net cash flow we need to get the non cash expenses back to net network (http://blog.arborinvestmentplanner.com/2011/05/what-is-net-cash-flow/) Net cash flow = Net income + dispraise Net Income = 3100000, Depreciation = 500000 NCF = 3100000 + 500000 NCF = 3600000 = $3.6 million 3.1 Greene Sisters has a DSO of 20 days....If you want to get a luxuriant essay, order it on our website: OrderEssay.net

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