1. A municipal and a corporate bond of equal risk, liquidity and maturity yield 6% and 10% respectively. For which values of marginal tax rates would you prefer to buy the municipal bond?
2. You are considering a new product launch. The project will cost S1,400,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year, price per unit will be $16,000, variable cost per unit will be S9,800, and fixed costs wil be S430,000 per year. The required returm on the project is 12 percent, and the relevant tax rate is 35 percent. Evaluate the sensitivity of your base-case NPV to an increase in fixed costs by $10,000?