Questions from Corporate Finance

Q: Problem 16.22 introduces taxes and information and transaction costs to

Problem 16.22 introduces taxes and information and transaction costs to the simplified Modigliani and Miller model. If the marginal tax rate for the firm were to suddenly increase by a material amount...

Q: What is M&M Proposition 1? M&M Proposition

What is M&M Proposition 1? M&M Proposition 2?

Q: Explain bootstrapping, and list the most common sources of seed money

Explain bootstrapping, and list the most common sources of seed money?

Q: Describe the order of financial sources for managers who subscribe to the

Describe the order of financial sources for managers who subscribe to the pecking order theory of financing. Evaluate that order by observing the costs of each source relative to the costs of other so...

Q: The pecking order theory suggests that managers prefer to first use internally

The pecking order theory suggests that managers prefer to first use internally generated equity to finance new projects. Does this preference mean that these funds represent an even cheaper source of...

Q: Discuss how the legal costs of financial distress may increase with the

Discuss how the legal costs of financial distress may increase with the probability that a firm will formally declare bankruptcy, even if the firm has not reached that point yet?

Q: Operating a firm without debt is generally considered to be a conservative

Operating a firm without debt is generally considered to be a conservative practice. Discuss how such a conservative approach to a firm’s capital structure is good or bad for the value of the firm in...

Q: Finite Corp. has $250 million of debt outstanding at an

Finite Corp. has $250 million of debt outstanding at an interest rate of 11 percent. What is the present value of the debt tax shield if the debt will mature in five years (and no new debt will replac...

Q: The Boring Corporation is currently valued at $900 million, but

The Boring Corporation is currently valued at $900 million, but management wants to completely pay off its perpetual debt of $300 million. Boring is subject to a 30 percent marginal tax rate. If Borin...

Q: If we drop the assumption that there are no information or transaction

If we drop the assumption that there are no information or transaction costs, in addition to dropping the no-tax assumption, then will the Modigliani and Miller model still suggest that the firm shoul...