Short Corp just issued bonds that will mature in 10 years, and Long Corp issued bonds that will mature in 20 years. Both bonds promise to pay a semiannual coupon, they are not callable or convertible, and they are equally liquid. Further assume that the Treasury yield curve is based only on the pure expectations theory. Under these conditions, which of the following statements is CORRECT?
a. If the yield curve for Treasury securities is flat, Short's bond must under all conditions have the same yield as Long's bonds.  
b. If the yield curve for Treasury securities is upward sloping, Long's bonds must under all conditions have a higher yield than Short's bonds.  
c. If the Treasury yield curve is upward sloping and Short has less default risk than Long, then Short's bonds must under all conditions have a lower yield than Long's bonds.  
d. If Long's and Short's bonds have the same default risk, their yields must under all conditions be equal.  
e. If the Treasury yield curve is downward sloping, Long's bonds must under all conditions have the lower yield.  

 

In 2020, Appalachian Airlines had taxable income of -$3,000,000. In 2021, the company has taxable income of $5,000,000 and its corporate tax rate is 25%. Assume that the company takes full advantage of the Tax Code's carry-forward provision. How much will the company pay in taxes in 2021?
a. $1,500,000  
b. $1,250,000  
c. $0  
d. $750,000  
e. $500,000

 

Which of the following statements is CORRECT?
a. The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital.  
b. The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock.  
c. The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets.  
d. The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit.  
e. The statement of cash flows shows how much the firm's cash--the total of currency, bank deposits, and short-term liquid securities (or cash equivalents)--increased or decreased during a given year. 

 

Griffey Communications recently realized $120,000 in operating income. The company had interest income of $30,000 and realized $70,000 in dividend income. The company's interest expense was $55,000. Its corporate tax rate is 25%. Griffey is a small company, so it is not subject to the interest expense deduction limitation. Assume a 50% dividend exclusion for taxes on dividends.

Which of the following most closely matches the tax liability of Griffey Communications?
a. $23,750  
b. $55,000  
c. $32,500  
d. $41,250  
e. $46,250  

Answer rating: 100% (QA)

Question 1 Bond Yields and Treasury Yield Curve The correct answer isc If the Treasury yield curve is upward sloping and Short has less default risk t... View the full answer