That is true, if you raise the rate then the present value falls.Of course, the present value will fall assuming the existence of positive cash flows. This annuity present value is divided into four pieces which are: the present value (PV), the periodic cash flow (C), the discount rate (r), and the number of payments, or the life of the annuity, (T).
Answer: After-tax cost of debt is 7.8%.
Explanation:
Given that,
coupon = 10% (outstanding bonds)
yield to maturity (YTM) = 12%
marginal tax rate = 35%
The after-tax cost of debt:
After-tax cost of debt = YTM (1 - Tax rate)
= 12% (1 - 0.35)
= 0.12 (0.65)
= 0.078
= 7.8%
YTM is used in the after-tax calculation because it represents the true pre-tax cost of debt to the issuer.
Therefore, the after-tax cost of debt is 7.8%
Answer:
(D) Southwest Airlines views itself as operating in a devolving market.
Explanation:
If Southwest Airlines believes it is operating in a devolving or declining market it will not make efforts to generate customer information with a view to enhancing customer experience.
The actions of Southwest Airlines are consistent with a company in an evolving market where there are new opportunities to expand their customer base and grow returns on investment.
Answer:
$1.23
Explanation:
The computation of the diluted earnings per share is shown below:
Diluted earning per share = Net income ÷ weighted number of common stock outstanding
where,
Net income is $391,320
Weighted average number of outstanding shares equal to
= 206,000 shares + 114,000 shares
= 320,000 shares
The 114,000 shares is
= 570,000 ÷ $15 × $12
= 456,000
Now 570,000 - 456,000 = 114,000 shares
So, the diluted earning per share
= $391,230 ÷ 320,000 shares
= $1.23
