1. The Grist Mill has no debt. The firm has a total market value of $245,000 with 10,000 shares of stock outstanding. The firm has expected EBIT of $14,000 if the economy is normal and $17,000 if the economy booms. The firm is considering a bond issue of $49,000 with an attached interest rate of 8 percent. The bond proceeds will be used to repurchase shares. The tax rate is 34 percent. Compute the EPS after the repurchase for both a normal and a boom economy. What is the percentage increase in EPS if the economy booms rather than being normal?
A. 18.78%
B. 21.42%
C. 19.84%
D. 29.76%
E. 19.29%
2. Roy and Barbara are near retirement. They have a joint life expectancy of 25 years in retirement. Barbara anticipates their annual income in retirement will need to increase each year at the rate of inflation, which they assume is 4%. Based on the assumption that their first year retirement need, beginning on the first day of retirement, for annual income will be $47,500, and an annual after-tax rate of return of 6.5%, calculate the total amount that needs to be in place when Roy and Barbara begin their retirement.
a. $743,590.43.
b. $859,906.74
c. $892,478.21.
d. $906,131.31.