Questions from Corporate Finance

Q: You have been asked to analyze a project where the analyst has

You have been asked to analyze a project where the analyst has estimated the return on capital to be 37% over the ten-year lifetime of the project. The cost of capital is only 12%, but you have concer...

Q: As the result of stockholder pressure, RJR Nabisco is considering spinning

As the result of stockholder pressure, RJR Nabisco is considering spinning off its food division. You have been asked to estimate the beta for the division and decide to do so by obtaining the beta of...

Q: You are an analyst for a sporting goods corporation that is considering

You are an analyst for a sporting goods corporation that is considering a new project that will take advantage of excess capacity in an existing plant. The plant has a capacity to produce 50,000 tenni...

Q: Answer true or false to the following questions relating to the free

Answer true or false to the following questions relating to the free cash flow hypothesis (as developed by Jensen). a. Companies with high operating earnings have high free cash flows. b. Companies wi...

Q: 21. A small, private firm has approached you for advice

21. A small, private firm has approached you for advice on its capital structure decision. It is in the specialty retailing business, and it had an EBIT last year of $500,000. • The book value of equi...

Q: Assume that Cracker Barrel, from Problem 20, wants to continue

Assume that Cracker Barrel, from Problem 20, wants to continue with its policy of not paying dividends. You are the CEO of Cracker Barrel and have been confronted by dissident stockholders, demanding...

Q: Accounting rates of return are based on accounting income and book value

Accounting rates of return are based on accounting income and book value of investment, whereas internal rates of return are based on cash flows and take into account the time value of money. Under wh...

Q: You are comparing the dividend policies of three dividend-paying utilities

You are comparing the dividend policies of three dividend-paying utilities. You have collected the following information on the ex-dividend behavior of these firms. If you were a tax-exempt investor,...

Q: Southwestern Bell, a phone company, is considering expanding its operations

Southwestern Bell, a phone company, is considering expanding its operations into the media business. The beta for the company at the end of 1995 was 0.90, and the debt-to-equity ratio was 1. The media...

Q: XCV, Inc., which manufactures automobile parts for assembly, is

XCV, Inc., which manufactures automobile parts for assembly, is considering the costs and the benefits of leverage. The CFO notes that the return on equity of the firm, which is only 12.75% now based...