Questions from Corporate Finance

Q: You have been asked to estimate the debt ratio for a firm

You have been asked to estimate the debt ratio for a firm with the following financing details: • The firm has two classes of shares outstanding: 50,000 shares of class A stock, with 2 voting rights p...

Q: You have been hired as a management consultant by AD Corporation to

You have been hired as a management consultant by AD Corporation to evaluate whether it has an appropriate amount of debt (the company is worried about a leveraged buyout). You have collected the foll...

Q: Assume now that you have uncovered the following facts about the types

Assume now that you have uncovered the following facts about the types of projects STL takes: • The projects are primarily infrastructure projects, requiring large initial investments and long gestati...

Q: Now assume that Lube Oil has a return on equity of 5

Now assume that Lube Oil has a return on equity of 5% and a cost of equity of 10%. As a stockholder in Lube Oil, would you want the firm to change its dividend policy? Why or why not?

Q: Gemco Jewelers earned $5 million in after-tax operating income

Gemco Jewelers earned $5 million in after-tax operating income in the most recent year. The firm also had capital expenditures of $4 million and depreciation of $2 million during the year, and the non...

Q: Geotech Inc., which has had a history of high growth and

Geotech Inc., which has had a history of high growth and pays no dividends, announces that it will start paying dividends next quarter. How would you expect its stock price to react to the announcemen...

Q: Antitakeover amendments can be in the best interests of stockholders. Under

Antitakeover amendments can be in the best interests of stockholders. Under what conditions is this likely to be true?

Q: You are considering the possibility of replacing an existing machine that has

You are considering the possibility of replacing an existing machine that has a book value of $500,000, a remaining depreciable life of five years, and a salvage value of $300,000. The replacement mac...

Q: UB is examining its capital structure with the intent of arriving at

UB is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a beta of 1.5. The riskless interest rate is 9%. Your research indicates th...

Q: Plastico, a manufacturer of consumer plastic products, is evaluating its

Plastico, a manufacturer of consumer plastic products, is evaluating its capital structure. The balance sheet of the company is as follows (in millions): In addition, you are provided the following in...