Questions from Corporate Finance

Q: Here are key financial data for House of Herring Inc.:

Here are key financial data for House of Herring Inc.: House of Herring plans to pay the entire dividend early in January 2026. All corporate and personal taxes were repealed in 2024. a. Other things...

Q: Reliable Gearing currently is all-equity-financed. It has

Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a d...

Q: Suppose that new security designs could be patented.14The patent holder

Suppose that new security designs could be patented.14The patent holder could restrict use of the new design or charge other firms royalties for using it. What effect would such patents have on MM’s c...

Q: What is wrong with the following arguments? a. As

What is wrong with the following arguments? a. As the firm borrows more and debt becomes risky, both stock- and bondholders demand higher rates of return. Thus, by reducing the debt ratio, we can redu...

Q: “MM totally ignore the fact that as you borrow more,

“MM totally ignore the fact that as you borrow more, you have to pay higher rates of interest.” Explain carefully whether this is a valid objection.

Q: Look back to Section 17-1. Suppose that Ms.

Look back to Section 17-1. Suppose that Ms. Macbeth’s investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.5%, which is 2.5% above the...

Q: Hubbard’s Pet Foods is financed 80% by common stock and 20

Hubbard’s Pet Foods is financed 80% by common stock and 20% by bonds. The expected return on the common stock is 12% and the rate of interest on the bonds is 6%. Assuming that the bonds are default-ri...

Q: Omega Corporation has 10 million shares outstanding, now trading at $

Omega Corporation has 10 million shares outstanding, now trading at $55 per share. The firm has estimated the expected rate of return to shareholders at about 12%. It has also issued long-term bonds a...

Q: There is an active, competitive leasing (i.e.,

There is an active, competitive leasing (i.e., rental) market for most standard types of commercial jets. Many of the planes flown by the major domestic and international airlines are not owned by the...

Q: Gamma Airlines has an asset beta of 1.5. The

Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%. Assume the capital asset pricing model is correct. Gamma pays taxes at a marginal rate of...