1. Assume that a short-term municipal bond pays interest of 3% while a similar taxable bond pays interest of 4%. If your marginal tax rate is 15%, which is the better investment? At what tax rate are you indifferent between the two bonds?
2. McCormac Co. wishes to maintain a growth rate of 8 percent a year, a debt-equity ratio of 0.35, and a dividend payout ratio of 54 percent. The ratio of total assets to sales is constant at 1.32.
Required:
What profit margin must the firm achieve?