Author Question: Worldwide Inc, a large conglomerate, has decided to acquire another firm. Analysts are ... (Read 55 times)

mynx · **on:** Jul 10, 2018

Worldwide Inc, a large conglomerate, has decided to acquire another firm.

Analysts are forecasting a period (2 years) of extraordinary growth (20), followed by another 2 years of unusual growth (10 ), and finally a normal (sustainable) growth rate of 6 annually. If the last dividend was D(0 ) = 1.00 per share and the required rate is 8, what should the market price be today?
A) 93.70
B) 72.76
C) 99.66
D) 98.57
E) 68.87

Question 2

You have a choice between investing in a corporate bond or a municipal bond. The corporate bond has an
annual yield of 10 percent, while the municipal bond has an annual yield of 7 percent.

At what tax rate would
you be indifferent between buying the corporate bond or the municipal bond?

bubulittle310@msn.cn · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

B

Answer to Question 2

Before-tax equivalent yield on municipal bond = .07 (1 - tax rate)
Before-tax yield on corporate bond = .10
.10 = .07 : Tax Rate = 1 - (.07/.