Questions from Corporate Finance

Q: Rumolt Motors has 30 million shares outstanding with a price of $

Rumolt Motors has 30 million shares outstanding with a price of $15 per share. In addition, Rumolt has issued bonds with a total current market value of $150 million. Suppose Rumolt’s equity cost of c...

Q: Summit Builders has a market debt-equity ratio of 0.

Summit Builders has a market debt-equity ratio of 0.65 and a corporate tax rate of 25%, and it pays 7% interest on its debt. The interest tax shield from its debt lowers Summit’s WACC by what amount?...

Q: You work in the corporate finance division of The Home Depot and

You work in the corporate finance division of The Home Depot and your boss has asked you to review the firm’s capital structure. Specifically, your boss is considering changing the firm’s debt level....

Q: NatNah, a builder of acoustic accessories, has no debt and

NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 15%. Suppose NatNah decides to increase its leverage and maintain a market debt-to-value ratio of 0.5. Suppose i...

Q: Acme Storage has a market capitalization of $100 million and debt

Acme Storage has a market capitalization of $100 million and debt outstanding of $40 million. Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest rate of 7.5% o...

Q: Milton Industries expects free cash flow of $5 million each year

Milton Industries expects free cash flow of $5 million each year. Milton’s corporate tax rate is 21%, and its unlevered cost of capital is 15%. The firm also has outstanding debt of $19.05 million, an...

Q: Suppose Microsoft has 8.75 billion shares outstanding and pays a

Suppose Microsoft has 8.75 billion shares outstanding and pays a marginal corporate tax rate of 21%. If Microsoft announces that it will pay out $50 billion in cash to investors through a combination...

Q: Kurz Manufacturing is currently an all-equity firm with 20 million

Kurz Manufacturing is currently an all-equity firm with 20 million shares outstanding and a stock price of $7.50 per share. Although investors currently expect Kurz to remain an all-equity firm, Kurz...

Q: Rally, Inc., is an all-equity firm with assets

Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding. Rally plans to borrow $10 billion and use these funds to repurchase shares. The firm’s corporate tax...

Q: Suppose the corporate tax rate is 25%, and investors pay a

Suppose the corporate tax rate is 25%, and investors pay a tax rate of 20% on income from dividends or capital gains and a tax rate of 33% on interest income. Your firm decides to add debt so it will...