Need HELP weather is A B C or D thanks... 1) Assume the spot rate on the Canadia

Question

Need HELP weather is A B C or D thanks...

1) Assume the spot rate on the Canadian dollar is C$1.0926. The risk-free nominal rate in the U.S. is 3.8 percent while it is 4.1 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

C$1.1058

C$1.0519

C$1.1012

C$1.0795

2) D. L. Tuckers has $48,000 of debt outstanding that is selling at par and has a coupon rate of 6.75 percent. The tax rate is 35 percent. What is the present value of the tax shield?

$1,134

$3,240

$16,800

$2,106

3) Chelsea Fashions is expected to pay an annual dividend of $1.10 a share next year. The market price of the stock is $21.80 and the growth rate is 4.5 percent. What is the firm's cost of equity?

7.91 percent

10.54 percent

9.55percet

9.24 percent

Need HELP weather is A B C or D thanks...

1) Assume the spot rate on the Canadian dollar is C$1.0926. The risk-free nominal rate in the U.S. is 3.8 percent while it is 4.1 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Explanation / Answer

Q. 3.) The firm's cost of equity = D1 / P0  + G ( Where D1 = Expected Dividend, P0 = market price of the stock & G = Growth rate)

   = 1.10 / 21.80 + 0.045

   = 0.05045 + 0.045

   = 0.09545 i.e., 9.545 %

= 9.55% (approx)

Conclusion:- The firm's cost of equity = 9.55%.

Q. 2.) The present value of the tax shield on debt = Tax rate times the amount of the debt

   = 35% of 48000

   = $ 16800

Conclusion:- The present value of the tax shield on debt = $ 16800.

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