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A $100,000 participation loan is originated at 7.75 percent. Payments are to be amortized monthly over 20 years. The loan calls for an equity participation payment of 10 percent of the sale price at the end of 12 years. Assuming the property sells for $250,000, what is the effective borrowing cost of the loan? Assume that there are no up-front financing costs associated with the loan.
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Harris Corporation has million in cash and million shares outstanding. Suppose the corporate tax rate is and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Harris to pay out the million through a share repurchase. Suppose instead that Harris announces it will permanently retain the cash and use the interest on the cash to pay a regular dividend. If there are no other benefits of retaining the cash, how will Harris' stock price change upon this announcement?
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