Questions from Financial Management

Q: Suppose Fastest Company, a new start-up firm, initially

Suppose Fastest Company, a new start-up firm, initially has $50 million in common equity and its common shareholders require or expect a return of 14 percent on this investment. After the first year,...

Q: Suppose Fastest Company is offered accounts payable terms of “2 percent

Suppose Fastest Company is offered accounts payable terms of “2 percent, 10 days, net 30 days” but its suppliers actually allow it to repay in 45 days. Estimate the annualized opportunity cost for not...

Q: Fastest Company has a debt rating of A and a tax

Fastest Company has a debt rating of A and a tax rate of 35 percent. The current long-term government bond yield is 2 percent. Suppose the typical spread between long-term government yields and A-rate...

Q: How would your answer in question 5 change if Fastest Company’s debt

How would your answer in question 5 change if Fastest Company’s debt rating deteriorated to BBB and the typical spread between long-term government yields and BBB-rated firms was 3 percent?

Q: Fastest Company’s common shares are currently trading for $30. It

Fastest Company’s common shares are currently trading for $30. It is expected that Fastest Company will pay an annual common share dividend of $2 next year. It is also expected that the dividend will...

Q: According to Modigliani and Miller (M&M), in a

According to Modigliani and Miller (M&M), in a world of perfect capital markets, what will be the expected equity return (or cost of equity) for a firm that has a cost of capital of 10 percent, a cost...

Q: How will your answer in question #3 change if we now

How will your answer in question #3 change if we now relax the M&M perfect capital markets assumption and incorporate a corporate tax rate of 35 percent? Ke = Kc + (Kc – Kd) (D/E) Kc = 10.0% Kd...

Q: What is the present value of a perpetual stream of annual cash

What is the present value of a perpetual stream of annual cash flows of $100, with the first cash flow to be received in one year, assuming a discount rate of 8 percent?

Q: What is the value of an all-equity firm that:

What is the value of an all-equity firm that: a. has a dividend payout ratio of 100 percent b. is expected to generate net income each year (forever) of $1 million, and c. has a required equity return...

Q: Assume that a firm’s earnings per share (EPS) are expected

Assume that a firm’s earnings per share (EPS) are expected to be $2.00 next year and that analysts have determined that an appropriate forward-looking multiple is 15 times the projected earnings. What...