Talking about leverage and firm value

Assignment Help Financial Management

Reference no: EM132053026

You are having a coffee chat in downtown Evanston with a friend who has just started working as a stock analyst and are talking about leverage and firm value. While working, your friend noticed that Apple (AAPL), Peet’s Coffee (PEET), and Urban Outfitter (URBN) are all unlevered even though they have enough profits to bene t from the interest tax shield. They are also very cash-rich; Apple, for example, has over $9.8 billion in cash on its balance sheet as of September 2011. She concludes that all these firms are clearly not maximizing shareholder value, because they are leaving money on the table. Do you agree with her statement? Explain your answer completely. Hint: There is no definite answer for this question, so think of it as an open debate. Support your argument with facts and evidence. A simple repetition of the answers to the first two questions will not earn you any credit.

Reference no: EM132053026

Questions Cloud

Profit can be made with covered interest arbitrage : How much profit can be made with covered interest arbitrage, by borrowing 1 million USD?

At the end of the two years you can sell the machine : Each year the machine will earn you $260 dllars. At the end of the two years you can sell the machine for $500.

Determine times-interest-earned ratio for each probability : What effect would this use of leverage have on the value of the firm? Determine the times-interest-earned ratio for each probability.

Compounded cost of debt after the project is undertaken : What is the firm's continuously compounded cost of debt after the project is undertaken?

Talking about leverage and firm value : You are having a coffee chat in downtown Evanston with a friend who has just started working as a stock analyst and are talking about leverage and firm value.

Residual distribution model-residual distribution policy : If the company follows a residual distribution model and pays all distributions as dividends, what will be its payout ratio?

Utilize the interest tax shield : While debt can be beneficial for firms that can utilize the interest tax shield, it can also come at a cost.

Dividends to grow at the long-run growth rate in earnings : Calculate Boehm's total dividends for 2016. Its 2016 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.

What is the intrinsic stock price : What is the value of operations? Immediately prior to the repurchase, what is the intrinsic stock price?

User Account

All Pages