1. Jacobee Corporation has net income of $35 million per year on net sales of $110 million per year. It currently has no long-term debt, but is considering a debt issue of $40 million. The interest rate on the debt would be 10%. Jacobee Corp. currently faces an effective tax rate of 35%. What would be the annual interest tax shield to Jacobee Corp. if it goes through with the debt issuance?
$560,000
$1,400,000
$8,000,000
$20,000,000
2. Which of the following actions would NOT help a firm's growth problem if its actual sales growth exceeds its sustainable rate of growth?
I. Increase dividends
II. Prune away less-profitable products
III. Decrease financial leverage
IV. Repurchase shares
I and IV only
I and III only
I, II, and IV only
I, III, and IV only
I, II, III, and IV