Questions from Corporate Finance

Q: In a world with no taxes, no transaction costs, and

In a world with no taxes, no transaction costs, and no costs of financial distress, is the following statement true, false, or uncertain? Moderate borrowing will not increase the required return on a...

Q: How does the existence of financial distress costs and agency costs affect

How does the existence of financial distress costs and agency costs affect Modigliani and Miller’s theory in a world where corporations pay taxes?

Q: Due to large losses incurred in the past several years, a

Due to large losses incurred in the past several years, a firm has $2 billion in tax loss carryforwards. This means that the next $2 billion of the firm’s income will be free from corporate income tax...

Q: It is sometimes suggested that firms should follow a “residual”

It is sometimes suggested that firms should follow a “residual” dividend policy. With such a policy, the main idea is that a firm should focus on meeting its investment needs and maintaining its desir...

Q: What are some of the potential problems with looking at IRRs when

What are some of the potential problems with looking at IRRs when evaluating a leasing decision?

Q: What is the difference between an American option and a European option

What is the difference between an American option and a European option?

Q: Define each of the following investment rules and discuss any potential shortcomings

Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a...

Q: For the company in the previous problem, what is the dividend

For the company in the previous problem, what is the dividend yield? What is the expected capital gains yield?

Q: For the company in Problem 2, show how the equity accounts

For the company in Problem 2, show how the equity accounts will change if: a. The company declares a four-for-one stock split. How many shares are outstanding now? What is the new par value per share?...

Q: Stone Shoe Co. has concluded that additional equity financing will be

Stone Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined...