World Cellphone Co. is considering the purchase of a new telecommunications system for $60millon. This system will
Question:
World Cellphone Co. is considering the purchase of a new telecommunications system for $60millon. This system will boost the firm's productivity so that its operating earnings will increase by $ 12 million per year over the next 8 years. World Cellphone Co.'s corporate tax rate is35% and its debt and equity costs are 7% and 14%, respectively. The manufacturer of the telecommunication system is willing to loan the firm $25million for the purchase at a subsidized rate of 5%(with World Cellfone Co. putting up the remainder from its retained earnings account.) The loan principal is to ve paid off in 5 equal installments over 5 years with interest being paid every year on the loan outstanding. If the firm's required rate of return under all-equity financing is 10%, should it go ahead with the purchase??
Which of the following observations appear to indicate market inefficiency? Explain whether the observation appears to contradict the weak, semistrong, or strong form of the inefficient-market hypothesis.
a. Tax-exempt municipal bonds to offer pretax returns than taxable government bonds.
b. Managers make superior returns on the purchases of their company
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling