Questions from Financial Management

Q: Does the MM theory appear to be correct according to either empirical

Does the MM theory appear to be correct according to either empirical research or observations of firms’ actual behavior? How do assumptions affect your conclusion about whether the MM theory appears...

Q: What is the trade-off theory of capital structure? How

What is the trade-off theory of capital structure? How does it differ from MM’s theory?

Q: In general, does the market view the announcement of a new

In general, does the market view the announcement of a new stock issue to be a good signal? Does the signaling theory lead to the same conclusions regarding the optimal capital structure as the trade-...

Q: What does it mean to be at the optimal capital structure?

What does it mean to be at the optimal capital structure? What is optimized? What is maximized and what is minimized?

Q: Should firms focus on book value or market value capital structures?

Should firms focus on book value or market value capital structures? How would the calculated WACC be affected by the use of book weights rather than market weights?

Q: What would you expect to happen to an all-equity firm’s

What would you expect to happen to an all-equity firm’s stock price if its management announced a recapitalization under which debt would be issued and used to repurchase common stock?

Q: Explain why sunk costs should not be included in a capital budgeting

Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included.

Q: Describe the six primary capital budgeting decision criteria. What are their

Describe the six primary capital budgeting decision criteria. What are their pros and cons, and how are they related to maximizing shareholder wealth? Should managers use just one criterion, or are th...

Q: Why do conflicts sometimes arise between the net present value (NPV

Why do conflicts sometimes arise between the net present value (NPV) and internal rate of return (IRR) methods; that is, what conditions can lead to conflicts? Can similar conflicts arise between modi...

Q: If management’s goal is to maximize shareholder wealth, should it focus

If management’s goal is to maximize shareholder wealth, should it focus on the regular IRR or the MIRR? Explain your answer