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1."Maximizing the value of the firm is usually consistent with maximizing shareholders’ wealth because the payments to debt holders and preferred stock holders are fixed, so if the firm generates additional profits, the benefits usually go to the shareholders." True or false?
a. True
b. False
2. "If the firm is under financial distress, the management has the incentive to forgo a positive NPV project as long as its return is not enough for the firm to avoid bankruptcy. But due to its positive NPV, debt-holders would takeover the firm with more valuable assets. In other words, the project would not save the shareholders but it would make debt-holders better off." True or false?
Describe the basic features of the three functions underlying the credit process at commercial banks.
Calculate the expected value of present worth EV(PW). What is the decision for this problem?
What is the price of the put-option, with the same strike price and expiration date as the call, using the same information?
What type of signals do debt and equity provide about the information asymmetries between firm insiders and investors?
What is the main difference between a PLAM and an ARM? Briefly explain.
Symantec does not currently pay a dividend, however, in 4 years you expect they will pay their first dividend and it will be $2 per share. The dividend is expected to grow at a rate of 5% and investors’ required rate of return for Symantec stock is 1..
Consider the following binomial option pricing problem involving an American call. This call has two periods to go before expiring. Its stock price is 30, and its exercise price is 25. The risk free rate is .05, the value of u is 1.15, and the value ..
Assume ABC Corporation has a B credit rating, rf = 5%, Rm = 8%, wd = 54%, Tc = 35%.
Explain how sensitivity analysis is related to the constraints. Provide an example.
What is the net position resulting from the hedge, and how does the hedged position compare with an unhedged position?
You are writing a comparison of an all-equity structure to a levered capital structure for a firm. It is accurate to state in this comparison that:
Mark and Parveen are the parents of three young children. Mark is a store manager in a local supermarket. His gross salary is $74200 per year. Parveen is a full-time stay-at-home mom. Use the easy method to estimate the family’s life insurance needs.
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