Suppose that the Lai Jean Co. expects before tax earnings of 5 million this coming year, assuming no liability losses. However, there is a 2 percent chance that Lai will lose a $10 million lawsuit during the year. Profits are taxed at a rate of 34 percent. Assume that Lai cannot carry losses forward or backward (e.g., it has had no profits in the past and it expects to close down next year). Would liability insurance with a $10 million limit for a premium of $225,000 increase expected after-tax earnings for this coming year? (Assume the negative earnings are taxed at a rate of zero percent)."
Answer to relevant QuestionsIn the real world, is it possible to construct a portfolio of stocks that has an expected return equal to the risk-free rate? Provide examples. John Walters is comparing the cost of credit to the cash price of an item. If John makes a $80 down payment and pays $34 a month for 24 months, how much more will that amount be then the cash price of $695?Consider a machine that fills soda bottles. The process has a mean of 15.9 ounces and a standard deviation of 0.06 ounces. The specification limits are set between 15.8 and 16.2 ounces.a) Compute and interpret the ...1. Suppose the required rate of return on stock is 11% and the growth rate is 5%. If the current price of stock is $20, then what is the value of D1 (next period's dividend)?2. Suppose the required rate of return on stock is ...Taylor Corp. is growing quickly. Dividends are expected to grow at a 30 percent rate for the next three years, with the growth rate falling off to a constant 6 percent thereafter.If the required return is 13 percent and the ...
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