Provide an explanation of the four points of making a comparison of investing returns on an after-tax basis
What will be an ideal response?
Answer: The tax rate we should be concerned with is the marginal tax rate, because it is the rate we pay on the next dollar of earnings. Check out tax-free investments, which become more attractive as your marginal tax bracket increases. Investigate investments made on a tax-deferred basis, which means the investment grows free of taxes until you liquidate the investment.
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Which of the following is NOT usually true about employee stock options?
A. There is a vesting period B. They can be sold to other employees C. They are often at-the-money when issued D. Their value is currently a charge to the income statement
Banco Industries expect sales to grow at a rapid rate over the next three years, but settle to an industry growth rate of 5% in year 4. The spreadsheet above shows a simplified pro forma for Banco Industries
If Banco industries has a weighted average cost of capital of 11%, $50 million in cash, $80 million in debt, and 18 million shares outstanding, which of the following is the best estimate of Banco's stock price at the start of year 1? A) $6.52 B) $11.74 C) $13.04 D) $23.48