Questions from Corporate Finance


Q: The Cornchopper Company is considering the purchase of a new harvester.

The Cornchopper Company is considering the purchase of a new harvester. Cornchopper has hired you to determine the break-even purchase price in terms of present value of the harvester. This break-even...

See Answer

Q: The YTM on a bond is the interest rate you earn on

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period...

See Answer

Q: The market portfolio has an expected return of 11 percent and a

The market portfolio has an expected return of 11 percent and a standard deviation of 19 percent. The risk-free rate is 4.3 percent. a. What is the expected return on a well-diversified portfolio with...

See Answer

Q: Beginning with the cost of capital equation—that is:

Beginning with the cost of capital equation—that is: show that the cost of equity capital for a levered firm can be written as follows:

See Answer

Q: McLemore Industries has a zero coupon bond issue that matures in two

McLemore Industries has a zero coupon bond issue that matures in two years with a face value of $75,000. The current value of the company’s assets is $46,000, and the standard deviation of the return...

See Answer

Q: In our capital budgeting examples, we assumed that a firm would

In our capital budgeting examples, we assumed that a firm would recover all of the working capital it invested in a project. Is this a reasonable assumption? When might it not be valid?

See Answer

Q: Another utilization of cash flow analysis is setting the bid price on

Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price repres...

See Answer

Q: Most corporations pay quarterly dividends on their common stock rather than annual

Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current divi...

See Answer

Q: Consider the following statement: For the APT to be useful,

Consider the following statement: For the APT to be useful, the number of systematic risk factors must be small. Do you agree or disagree with this statement? Why?

See Answer

Q: The Frush Corporation has two different bonds currently outstanding. Bond M

The Frush Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 ever...

See Answer