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Figure 1 in Chapter 8 broke down the sources of external financing for non-financial businesses in the U.S. as follows:
Non-bank loans 38%
Bank loans 18%
Bonds 32%
Stocks 11%
Explain why the young founders of Google, Amazon, Facebook, Uber, Airbnb, Netflix turned to venture capital (a non-bank financial intermediary) before they turned to banks for loans or do an IPO to become a public corporation so they can access financing from the bond and stock markets. What does the textbook say about how venture capital firms deal with the free-rider problem? the moral hazard problem?
Use the concepts of adverse selection (lemons problem) and moral hazard (principal-agent problem) faced by banks and stock market investors and explanations for facts # 1, 2, 5, 6, 7, and 8 (refer to PPT slides and/or textbook).
Calculate the future value of $5,000 earning 10% after one year assuming annual compounding. Richard Gorman is 65 years old and about to retire. He has $500,000 saved to supplement his pension and Social Security, and would like to withdraw it in equ..
Assuming that inflation is zero from year 10, how much will Prof. Washington need 10years from today to fund his desired retirement annuity?
Understand how marginal tax brackets work and how they are applied to determine a tax liability. Calculate and compare a company’s effective tax rate with its marginal tax rate
Suppose the Fed Wants to raise the normal interest rate by open market operations, changing the reserve requirement, or changing the discount rate. Draw a graph of the money market to show how the Fed's action translates into a high nominal interest ..
Gordon's Meats has 6,500 shares of stock outstanding. The market value is $26.50 per share. The statement of financial position shows $48,200 in the common stock account, and $142,900 in the retained earnings account. The firm just announced a 5 perc..
Both Bond Bill and Bond Ted have 10 percent coupons, make semi annual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity. If interest rates suddenly rise by 3 percent, what is the perce..
Briefly describe the agency problem that exists between owners and lenders. How do lenders cause firms to incur agency costs to resolve this problem?
The dividend is expected to grow at a constant rate of 5% a year. The required rate of return on the stock, rs, is 13%. What is the stock's current value per sh
The term "Gross lease" means: An investment project has the cash flow stream of $-3250, $80, $200, $75, and $90. The cost of capital is 12%. What is the discounted payback period?
The expected return on the market is 12.7 percent. What is the company’s cost of equity capital?
Compare all alternatives by reward and risk and choose the best alternative.
Current practice is to factor all receivables immediately at a discount of 1.8 percent. What is the effective cost of borrowing in this case?
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