1. The firm is considering using debt in its capital structure. If the market rate of 5% is appropriate for debt of this kind, what is the after tax cost of debt for the company? What are the advantages and disadvantages of using this type of financing for the firm?
2. Suppose silver is selling for $18 (spot price) an ounce and it costs $1 an ounce to store silver for 1 year (payable at the end of the year). If you can borrow or lend at 12% per year, what should the one-year futures price of silver be if there are no riskless profits to be made? What would you do to make riskless profits if the futures price was actually $23?