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The M&M theory states it does not make any difference from an economist’s view whether a firm raises financing as equity or debt. However floatation costs are more for equity than debt and interest on debt is tax deductible whereas dividends are not. How do you explain this difference between the market realities and the M&M theory? Further given the experience of Enron what business risks are related to excessive debt that the M&M theory does not take into consideration.
The company has no beginning or ending inventories and produced and sold 10,000 units during the month. What is the company's break-even in units? How many units would the company have to sell to attain target profits of $225,000? What is the company..
A company is considering new automated cleaning equipment. The engineer for the company has been asked to calculate the present worth of the proposed alternative. The market value at the end of the five year study period is 12.5% of the initial cost...
You have been asked to value a company using the FCF method. The free cash flow last year for the company was $20 million. Free cash flow for next year expected to be -$20 million. What is the value you get for the operations of the firm? The firm ha..
An extra tractor will lead to an increase in revenue for a farmer in successive years of £500, £4000, £3,000, £3,000 and £1,000, after which the tractor is sold for £1,000. Assuming that the first revenue is treated as current and the interest rate i..
Why does the firm’s market value differ from its book value? Do you know how to use the Internet to look up financial information on a company? See if you can find market value and book value for Apple.
Suppose that a firm's common equity is selling for $150 in the market, that the firm has $115 million in Net Income, and the firm has 20 million common shares outstanding. Finally, the firm faces a moderately high cost of common equity of 14%. What..
You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $84,000 per year for the next two years, or you can have $73,000 per year for the next two years, along wi..
Mickey’s Boats will produce a new line of speed boats. It has a choice of larger production facility with a less laborers or smaller production facility with more laborers. Calculate the number of speed boats for which the accounting operating profit..
An asset has had an arithmetic return of 10.8 percent and a geometric return of 8.8 percent over the last 86 years. What return would you estimate for this asset over the next 7 years? 21 years? 28 years?
A corporation has total assets of $85 million and total liabilities of $5 million. If the corporation has 4 million shares of common stock outstanding, what is the book value per share of common stock?
Can you explain the variable growth model and try to solve this problem: Jia's Fashions recently paid a $2 annual dividend. The company is projecting that its dividends will grow by 20 percent next year, 12 percent annually for the two years after th..
Break-even analysis The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez’s autograph stamped on them. Each bat sells for $13 and has a variable cost of $8. There are $20,000 in fixed costs involved in the production process. Compu..
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