Description of this paper

Two Finance MCQs

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solution


Question

Question;Tomy Inc. has a 0.6 probability of a good year with operating cash flow of $50,000, and 0.4 probability of a bad year with operating cash flow of $30,000. The company has a debt of $35,000 with 8% interest due next year. Assuming the company has no means of servicing its debt other than operations, and a 0% tax rate, which of the following is True:a) Shareholders expected claim is $12,200b) Creditors expected claim is $37,800c) Creditors expected claim is $34680d) None of the above.2. Poto corporation has a net income of $20,000 and tax rate of 35%. Its total debt is $25,000 withPrincipal Payments of $5000 due at the end of each year and an annual interest rate of 8%. What will be Poto Corporations?s interst tax shield in the upcoming year?a) $8,750 b) $700 c) $9,450 d) $2,450

 

Paper#48594 | Written in 18-Jul-2015

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