Questions from Corporate Finance


Q: In contrast to the CAPM, the APT does not indicate which

In contrast to the CAPM, the APT does not indicate which factors are expected to determine the risk premium of an asset. How can we determine which factors should be included? For example, one risk fa...

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Q: Suppose Tom O’Bedlam, president of Bedlam Products, Inc., has

Suppose Tom O’Bedlam, president of Bedlam Products, Inc., has hired you to determine the firm’s cost of debt and cost of equity capital. a. The stock currently sells for $50 per share, and the dividen...

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Q: A company is contemplating a long-term bond issue. It

A company is contemplating a long-term bond issue. It is debating whether to include a call provision. What are the benefits to the company from including a call provision? What are the costs? How do...

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Q: How would you answer in the following debate? Q:

How would you answer in the following debate? Q: Isn’t it true that the riskiness of a firm’s equity will rise if the firm increases its use of debt financing? A: Yes, that’s the essence of MM Proposi...

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Q: If you use the stock beta and the security market line to

If you use the stock beta and the security market line to compute the discount rate for a project, what assumptions are you implicitly making?

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Q: What are the sources of agency costs of equity?

What are the sources of agency costs of equity?

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Q: Criteria Discuss the IRS criteria for determining whether a lease is tax

Criteria Discuss the IRS criteria for determining whether a lease is tax deductible. In each case give a rationale for the criterion.

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Q: Describe the difference between systematic risk and unsystematic risk.

Describe the difference between systematic risk and unsystematic risk.

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Q: Music City, Inc., has no debt outstanding and a total

Music City, Inc., has no debt outstanding and a total market value of $295,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. If there is str...

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Q: Star Mining buys a gold mine, but the cost of extraction

Star Mining buys a gold mine, but the cost of extraction is currently too high to make the mine profitable. In option terminology, what type of option(s) does the company have on this mine?

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