Questions from Corporate Finance

Q: In footnote 15 we referred to the Miles–Ezzell discount rate

In footnote 15 we referred to the Miles–Ezzell discount rate formula, which assumes that debt is not rebalanced continuously, but at one-year intervals. Derive this formula. Then use it to unlever San...

Q: You are asked to value a large building in northern New Jersey

You are asked to value a large building in northern New Jersey. The valuation is needed for a railroad bankruptcy settlement. Here are the facts: a. The settlement requires that the building’s value e...

Q: The WACC formula assumes that debt is rebalanced to maintain a constant

The WACC formula assumes that debt is rebalanced to maintain a constant debt ratio D/V. Rebalancing ties the level of future interest tax shields to the future value of the company. This makes the tax...

Q: Modify Table 19.1 on the assumption that competition eliminates any

Modify Table 19.1 on the assumption that competition eliminates any opportunities to earn more than WACC on new investment after year 7 (PVGO = 0). How does the valuation of Rio change? Table 19.1:

Q: Modify Table 19.1 on the assumption that competition eliminates any

Modify Table 19.1 on the assumption that competition eliminates any opportunities to earn more than WACC on new investment after year 7 (PVGO = 0). How does the valuation of Rio change? Table 19.6 is...

Q: Sulphur Ridge Mining is considering the development of a new calonium mine

Sulphur Ridge Mining is considering the development of a new calonium mine at Moose Bend in northern Alberta. The mine would require an upfront investment of $110 million and would produce 100,000 ton...

Q: The manufacture of polysyllabic acid is a competitive industry. Most plants

The manufacture of polysyllabic acid is a competitive industry. Most plants have an annual output of 100,000 tons. Operating costs are $.90 a ton, and the sales price is $1 a ton. A 100,000-ton plant...

Q: The world airline system is composed of the routes X and Y

The world airline system is composed of the routes X and Y, each of which requires 10 aircraft. These routes can be serviced by three types of aircraft—A, B, and C. There are 5 type A aircraft availab...

Q: Taxes are a cost, and, therefore, changes in tax

Taxes are a cost, and, therefore, changes in tax rates can affect consumer prices, project lives, and the value of existing firms. The following problem illustrates this. It also illustrates that tax...

Q: Define the following: (a) Agency costs in capital

Define the following: (a) Agency costs in capital investment, (b) private benefits, (c) empire building, (d) entrenching investment, (e) delegated monitoring.