If you compare the yield of a municipal bond with that of a negotiable certificate of deposit, what is
the equivalent before-tax yield of the certificate of deposit if the municipal bond has a yield of 8
per year and the investor has a marginal
tax rate of 28?
A) 10.24 B) 11.11 C) 8.28 D) 9.30
Question 2
Balon Plastics, Inc is financed entirely with 3 million shares of common stock selling for 20 a share. Capital of
4 million is needed for this year's capital budget.
Additional funds can be raised with new stock (ignore
dilution) or with 13 percent 10-year bonds. The firm's tax rate is 40 percent.
a. Calculate the financing plan's EBIT indifference point.
b. The expected level of EBIT is 10,320,000 with a standard deviation of 2,000,000. What is the probability
that EBIT will be above the indifference point?
c. Does the indifference point calculated in question (a) above truly represent a point where stockholders are
indifferent between stock and debt financing? Explain your answer.
Corrosion on Copper Bond Pad
Water Polar Bond
Energy is released from the breaking of the phosphate bond in ATP when converting to ADP.
Covalent and noncovalent bond energies
Covalent bond
Hydrogen Bond with Peptide