Questions from Corporate Finance

Q: Suppose a firm uses a constant WACC to calculate the NPV of

Suppose a firm uses a constant WACC to calculate the NPV of all of its capital budgeting projects, rather than adjusting for the risk of the individual projects. What errors will the firm make in its...

Q: Why is the earnings yield not usually an adequate measure of the

Why is the earnings yield not usually an adequate measure of the investor’s required return on equity?

Q: How are the ROE and Ke related to a firm’s growth opportunities

How are the ROE and Ke related to a firm’s growth opportunities and its M/B ratio?

Q: How can we relate the existence of multiple growth stages to four

How can we relate the existence of multiple growth stages to four commonly used firm classifications?

Q: What are some of the disadvantages of carrying inventories?

What are some of the disadvantages of carrying inventories?

Q: Describe the Fed model and how it may be used to estimate

Describe the Fed model and how it may be used to estimate the required rate of return of the market as a whole.

Q: How do flotation costs affect the cost of capital sources for a

How do flotation costs affect the cost of capital sources for a firm?

Q: Explain how to estimate the cost of debt and preferred equity for

Explain how to estimate the cost of debt and preferred equity for a firm.

Q: A firm has the following capital structure based on market values:

A firm has the following capital structure based on market values: equity 60 percent and debt 40 percent. The current yield on government T‐bills is 3 percent, the expected return on the market portfo...

Q: A firm has the following balance sheet items: /

A firm has the following balance sheet items: The before‐tax interest cost on new 15‐year debt would be 7 percent, and each $1,000 bond would net the firm $972 afte...