Questions from Corporate Finance

Q: What is data mining? Why might it overstate the relation between

What is data mining? Why might it overstate the relation between some stock attribute and returns?

Q: Consider a levered firm’s projects that have similar risks to the firm

Consider a levered firm’s projects that have similar risks to the firm as a whole. Is the discount rate for the projects higher or lower than the rate computed using the security market line? Why?

Q: Several celebrated investors and stock pickers frequently mentioned in the financial press

Several celebrated investors and stock pickers frequently mentioned in the financial press have recorded huge returns on their investments over the past two decades. Does the success of these particul...

Q: As was mentioned in the chapter, new equity issues are generally

As was mentioned in the chapter, new equity issues are generally only a small portion of all new issues. At the same time, companies continue to issue new debt. Why do companies tend to issue little n...

Q: For initial public offerings of common stock, 2007 was a relatively

For initial public offerings of common stock, 2007 was a relatively slow year, with only about $35.6 billion raised by the process. Relatively few of the 159 firms involved paid cash dividends. Why do...

Q: The yields on nonconvertible preferred stock are lower than the yields on

The yields on nonconvertible preferred stock are lower than the yields on corporate bonds. Why is there a difference? Which investors are the primary holders of preferred stock? Why?

Q: When should a firm force conversion of convertibles? Why?

When should a firm force conversion of convertibles? Why?

Q: The newspaper reported last week that Bennington Enterprises earned $29 million

The newspaper reported last week that Bennington Enterprises earned $29 million this year. The report also stated that the firm’s return on equity is 17 percent. Bennington retains 80 percent of its e...

Q: The Wildcat Oil Company is trying to decide whether to lease or

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay...

Q: In the previous problem, assume that the exercise style on the

In the previous problem, assume that the exercise style on the option is American rather than European. What is the price of the option now? (Hint: How will you find the value of the option if it can...