Reference no: EM13848248
1. In 250 words, respond to the following. "You say stock price equals the present value of future dividends? That's crazy! All the investors I know are looking for capital gains.
2. In 250 words, explain why investors demand higher expected rates of return on stocks with more variable rates of return.
3. Suppose a firm uses its company cost of capital to evaluate all projects. Will it underestimate or overestimate the value of high-risk projects? Respond in 250 words.
4. In 250 words, what are the most critical concepts involved with successful capital structure patterns? Can certain steps be overlooked? Why or why not?
5. In 250 words, how can a firm utilize leveraging to maintain a high level of competition?
6. In 250 words, what role does financial planning play for a competitive firm?
7. How can Economic Value Added (EVA) statements be used to improve financial statement reporting, results, and success? What are some problems found with EVA?
• Write a paper of 500-700 words, typewritten in double-spaced format (Arial 12-point font or Times New Roman styles), page margins Top, Bottom, Left Side and Right Side = 1 inch, with reasonable accommodation being made for special situations and online submission variances.
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Assume that MM’s theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate.
a. How much of the firm’s value is accounted for by the debt-generated tax shield?
b. How much better off will UF’s a shareholder be if the firm borrows $20 more and uses it to repurchase stock?
Some companies’ debt-equity targets are expressed not as a debt ratio, but as a target debt rating on a firm’s outstanding bonds.
What are the pros and cons of setting a target rating, rather than a target ratio?
A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). What is the project’s APV in the following cases?
a. If the firm invests, it has to raise $500,000 by a stock issue. Issue costs are 15% of net proceeds.
b. If the firm invests, its debt capacity increases by $500,000. The present value of interest tax shields on this debt is $76,000.
The WACC formula seems to imply that debt is "cheaper" than equity--that is, that a firm with more debt could use a lower discount rate. Does this make sense? Explain briefly.
Attachment:- 1300239_3_Week-7.xlsx
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