In the Year Just Past (Year 1)Hane Heavy Industries Had

question 8

Multiple Choice

In the year just past (Year 1) Hane Heavy Industries had no debt.Today is January 1 of Year 2.Hane is considering a plan to sell bonds worth $30B and use the proceeds to repurchase 2B shares (on the open market at $15/share) .If Hane maintains this new level of debt in perpetuity,then what is the present value of the resulting interest tax shields? Assume that the debt is sold immediately,that the bonds are a perpetuity,and that interest is paid at the end of each year.Assume that the coupon rate on the bonds is 3.5% and that the tax rate is 13%.

• A) $3.9B
• B) $7.8B
• C) $13.7B
• D) $26.1B
• E) $30B

Comprehend the periodicity and independence requirement of internal reviews for reinforcing internal controls.

Acknowledge the limitations and the cost-benefit principle underlying internal controls.

Distinguish between the roles and responsibilities within an internal control system to prevent and detect fraud.

Identify the role and importance of segregation of duties in internal control systems.

---

Definitions:

Implicit Cost

The opportunity cost equal to what a firm must give up in order to use resources it owns, without paying rent or borrowing costs.

Free Entry

A market condition where new participants can enter the industry freely without facing prohibitive barriers to entry.

Zero Profits

A situation in which a company's revenues exactly equal its expenses, resulting in no net income or loss.

Price

The monetary value estimated, obligatory, or presented in compensation for an object.