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Write true or false next to each statement.
1. If firms did not have limited liability, their asset risk would be increased.
2. As long as the firm is certain that the return on assets will be higher than the interest rate, an issue of debt makes the shareholders better off.
3. In a perfect capital market, minimizing the weighted average cost of capital is equivalent to maximizing the firm's value.
4. MM's proposition II assumes increased borrowing does not affect the interest rate on the firm's debt.
5. Shareholders demand and deserve higher expected rates of return than bondholders do. Therefore, debt is the cheaper capital source. We can reduce the WACC by borrowing more.
You buy 400 shares of stock at a price of $64 and an initial margin of 50 percent. If the maintenance margin is 30 percent, at what price will you receive a margin call?
We know the following about Carl & Co. Total assets are $200m, D is $60m, E is $130m, cash is $50m and the # of shares is 1m. We estimate that the market value of equity is 3 times the book value of it. Finally, a fire sale of the firm would bring 40..
Suppose you are committed to owning a $196,000 Ferrari. If you believe your mutual fund can achieve a 12 percent annual rate of return and you want to buy the c
Agencies such as Moody’s, Fitch, and Standard and Poor’s rate the default risk of various municipal and corporate bonds. While their rating systems are proprietary, it is widely known that they rely on financial ratios as key inputs to their bond rat..
Determine the distribution (dollar amount and percentage) of the liquidation proceeds among the various creditors of Go-for-Broke.
VARIABLE GROWTH A fast-growing firm recently paid a dividend of $0.35 per share. The dividend is expected to increase at a 20 percent rate for the next three years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 13 percent disc..
What is the nominal and effective cost of trade credit under the credit terms of 3/10, net 40? Assume 365 days in a year for your calculations.
Conceptually, stock dividends and stock splits may be expected to increase Shareholder's value.
the launch of the Deluxe Burger is expected to reduce regular burger sales by 65,000 sandwhiches?
A stock has an annual return of 11.6 percent and a standard deviation of 47 percent. What is the smallest expected gain over the next year with a probability of 1 percent?
Electronics World Inc. paid out $29.8 million in total common dividends and reported $194.7 million of retained earnings at year-end. The prior year's retained earnings were $151.9 million. What was the net income? Assume that all dividends declared ..
Analyze the implication of the Affordable Care Act on your decision to purchase insurance.
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