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While debt can be beneficial for firms that can utilize the interest tax shield, it can also come at a cost. Explain what risk-shifting is and give an example. How does it differ from debt overhang? Why and how might these problems be costly for investors of the firm? What kinds of companies are more likely to be prone to these problems? Be as specific as you can when describing those companies. Suggest ways to alleviate these problems.
A couple will retire in 50 years; they plan to spend about $30,000 (real dollars) a year in retirement, which should last about 25 years. They believe that they can earn 8% nominal interest on retirement savings, and the couple realizes that the annu..
Have your ideas and perceptions changed about business law and its scope?
what is the most that you can pay for the bond and still earn at least a 9.0% per year return on your investment?
Corporate finance has three main areas of concern: Capital Budgeting: What long-term investments should the firm take? Capital structure: Where will the firm get the long-term financing to pay for its investments? Also, what mixture of debt and equit..
Compute its cash flow using the following format. Earnings before depreciation and taxes-Taxes-Depreciation
Investment in portfolio A has a standard deviation of 9%, while investment in portfolio B has a standard deviation of 14%. In order to tolerate the increased risk, what would you as an investor expect? The required rate of return for an investment ca..
Similar bonds are being issued that pay 4%. What is Tristan’s bond worth today?
What is the cost of retained earnings?
The unlevered firm expects to earn $250,000 in net operating income each year for the foreseeable future. It has a tax rate of 40% and has a capitalization rate of 8% equal to the industry required return for this type of firm. what is the overall va..
DOES SIZE MATTER? most of the examples in the text are medium or large companies. think about the concepts of risk which are part of this section of the course in the context of the side of a Firm. would these change if the Firm were large? small? me..
Due to a recession, expected inflation this year is only 3.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3.25%. Assume that expectations theory holds and the real risk-free rate is r* = 2.75%..
What are the advantages and disadvantages of selling a combination of stocks and bonds? Be sure to support your answers.
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