after-tax borrowing rate

[avnx]

One question ask what's the after-tax borrowing rate for a company to keep P/E the same after borrowing debt to retire 4million dollar common stock?

Then in the afternoon it was asked again?

I put earning yield (my other consideration is dividend yield), what od you think

it's either +2 or -2



Edited 1 time(s). Last edit at Thursday, June 7, 2007 at 02:00PM by avnx.

 

[ruhi22]

yep. if EPS needs to stay the same , then Earnings yield should be equal to the after tax cost of borrowing. No calculation required. I think it was 4%, though I don't remember for sure.

 

[bannisja]

+2 for you

the funny thing- i was going to leave for the test and my roommate said to me, i hear that you should exercise your brain before a test and take a few questions to wake up your mind. so i took a 5 question q-bank quiz on FSA. i literally got this question exactly about the debt and earning yld. i went 4 for 5 on the q-bank, that being my one wrong answer beforehand. thank you q-bank luck of the draw.

i'm about 99% sure you're good on these.

 

[ruhi22]

bannisja, you are a lucky babe, seriously! i was too scared of solving any more questions. basically, i was confused right before the test and didn't have a clue. so, i just went off to sleep.

 

[avnx]

ruhi, i envy to able to sleep the night before
I went to bed at 11, and last time i checked the clock was 2am :S

 

[ruhi22]

no avnx, i said I "went off" to sleep. Doesn't mean tht I slept :-( I had terrible nightmares. Could hardly sleep. Last night, I dreamt that my results are out and I got a B?!!! plain weird.

 

[bhaiyyu]

ruhi22 Wrote:
-------------------------------------------------------
> yep. if EPS needs to stay the same , then Earnings
> yield should be equal to the after tax cost of
> borrowing. No calculation required. I think it was
> 4%, though I don't remember for sure.

yup, it was 4 % ... feels good

 

[acwilson]

hi, are you sure the ''earning yield'' question has appeared twice? no offences....and I would like to know whether the am/pm paper are the same all over the world?

 

[nitya36]

Yes
twice
#7777 and #6666
when borrowing rate =E/P (E yield), EPS remains same
Its easy if you read CFA readings

for me, CF was rocking thanks to CFA notes
I failed in dec thx to CF and Deriv(I never gave importance to these easy marks)

 

[oagra]

4% here too... there was one example of a very similar question in the schewer book. I cant remember it coming up twice though... hmmm, but then again I did take the #2222 and #3333 exams.

 

[slouiscar]

^ agree.

I also wrote 2222 and 3333 and I aslo only remember one q on this. I would have loved to have seen 2!

We hit this in here not too far back during a discussion on div vs. stock buyback.

http://www.analystforum.com/phorums/read.php?11,530239,542591#msg-542591