All Matches

Solution Library

Expert Answer

Textbooks

Search Textbook questions, tutors and Books

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Tutors
Study Help
Ask a Question
AI Study Help New

Search
Sign In
Register

study help
business
principles corporate finance

Questions and Answers of Principles Corporate Finance

You work for Microsoft Corporation (ticker: MSFT), and you are considering whether to develop a new software product. The risk of the investment is the same as the risk of the company.a. Using the
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $5000 on which it pays interest of 10% each year. Both companies have identical projects that generate free cash flows of
Explain what is wrong with the following argument: “If a firm issues debt that is risk free, because there is no possibility of default, the risk of the firm’s equity does not change. Therefore,
Suppose PayPal (PYPL) has no debt and an equity cost of capital of 9.2%. The average debt-tovalue ratio for the credit services industry is 15%. What would its cost of equity be if it took on the
Hubbard Industries is an all-equity firm whose shares have an expected return of 10%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is
Hartford Mining has 50 million shares that are currently trading for $4 per share and $200 million worth of debt. The debt is risk free and has an interest rate of 5%, and the expected return of
In early 2022 Meta Platforms had $14.5 billion in debt, total equity capitalization of $600 billion, and an equity beta of 1.38 (as reported on Yahoo! Finance). Included in Meta’s assets was $48
Indell stock has a current market value of $120 million and a beta of 1.50. Indell currently has risk-free debt as well. The firm decides to change its capital structure by issuing $30 million in
Pelamed Pharmaceuticals has EBIT of $325 million in 2006. In addition, Pelamed has interest expenses of $125 million and a corporate tax rate of 25%.a. What is Pelamed’s 2006 net income?b. What is
Grommit Engineering expects to have net income next year of $20.75 million and free cash flow of $22.15 million. Grommit’s marginal corporate tax rate is 20%.a. If Grommit increases leverage so
Suppose the corporate tax rate is 25%. Consider a firm that earns $1000 before interest and taxes each year with no risk. The firm’s capital expenditures equal its depreciation expenses each year,
Braxton Enterprises currently has debt outstanding of $35 million and an interest rate of 8%.Braxton plans to reduce its debt by repaying $7 million in principal at the end of each year for the next
Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal
Arnell Industries has just issued $10 million in debt (at par). The firm will pay interest only on this debt. Arnell’s marginal tax rate is expected to be 21% for the foreseeable future.a. Suppose
Ten years have passed since Arnell issued $10 million in perpetual interest only debt with a 6%annual coupon, as in Problem 6. Tax rates have remained the same at 21% but interest rates have dropped,
Bay Transport Systems (BTS) currently has $30 million in debt outstanding. In addition to 6.5%interest, it plans to repay 5% of the remaining balance each year. If BTS has a marginal corporate tax
Safeco Inc. has no debt, and maintains a policy of holding $10 million in excess cash reserves, invested in risk-free Treasury securities. If Safeco pays a corporate tax rate of 21%, what is the cost
Rogot Instruments makes fine violins and cellos. It has $1 million in debt outstanding, equity valued at $2 million, and pays corporate income tax at rate of 21%. Its cost of equity is 12%and its
Rumolt Motors has 30 million shares outstanding with a price of $15 per share. In addition, Rumolt has issued bonds with a total current market value of $150 million. Suppose Rumolt’s equity cost
Summit Builders has a market debt-equity ratio of 0.65 and a corporate tax rate of 25%, and it pays 7% interest on its debt. The interest tax shield from its debt lowers Summit’s WACC by what
NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 15%.Suppose NatNah decides to increase its leverage and maintain a market debt-to-value ratio of 0.5. Suppose
Restex maintains a debt-equity ratio of 0.85, and has an equity cost of capital of 12% and a debt cost of capital of 7%. Restex’s corporate tax rate is 25%, and its market capitalization is$220
Acme Storage has a market capitalization of $100 million and debt outstanding of $40 million.Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest rate of 7.5%
Milton Industries expects free cash flow of $5 million each year. Milton’s corporate tax rate is 21%, and its unlevered cost of capital is 15%. The firm also has outstanding debt of $19.05 million,
Suppose Microsoft has 8.75 billion shares outstanding and pays a marginal corporate tax rate of 21%. If Microsoft announces that it will pay out $50 billion in cash to investors through a combination
Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding.Rally plans to borrow $10 billion and use these funds to repurchase shares. The firm’s corporate
Suppose the corporate tax rate is 25%, and investors pay a tax rate of 20% on income from dividends or capital gains and a tax rate of 33% on interest income. Your firm decides to add debt so it will
Facebook, Inc. had no debt on its balance sheet in 2014, but paid $2 billion in taxes. Suppose Facebook were to issue sufficient debt to reduce its taxes by $250 million per year permanently.Assume
Markum Enterprises is considering permanently adding $100 million of debt to its capital structure. Markum’s corporate tax rate is 25%.a. Absent personal taxes, what is the value of the interest
Suppose the tax rate on interest income is 35%, and the average tax rate on capital gains and dividend income is 10%. How high must the marginal corporate tax rate be for debt to offer a tax
Without leverage, Impi Corporation will have net income next year of $4.5 million. If Impi’s corporate tax rate is 21% and it pays 8% interest on its debt, how much additional debt can Impi issue
Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk’s assets is $81 million, and the firm has no other liabilities. Assume perfect capital
When a firm defaults on its debt, debt holders often receive less than 50% of the amount they are owed. Is the difference between the amount debt holders are owed and the amount they receive a cost
Which type of firm is more likely to experience a loss of customers in the event of financial distress:a. Campbell Soup Company or Intuit, Inc. (a maker of accounting software)?b. Allstate
Which type of asset is more likely to be liquidated for close to its full market value in the event of financial distress:a. An office building or a brand name?b. Product inventory or raw
You work for a large car manufacturer that is currently financially healthy. Your manager feels that the firm should take on more debt because it can thereby reduce the expense of car warranties.To
Historically, Meta Platforms (parent company of Facebook) has had more cash than debt. As Problem 21 in Chapter 15 makes clear, by issuing more debt Meta could generate a very large tax shield worth
Hawar International is a shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Hawar announces plans to lower its corporate taxes by borrowing $20 million and
Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of
Real estate purchases are often financed with at least 80% debt. Most corporations, however, have less than 50% debt financing. Provide an explanation for this difference using the tradeoff
Sarvon Systems has a debt-equity ratio of 1.2, an equity beta of 2.0, and a debt beta of 0.30. It currently is evaluating the following projects, none of which would change the firm’s
Empire Industries forecasts net income this coming year as shown below (in thousands of dollars):Approximately $200,000 of Empire’s earnings will be needed to make new, positive-NPV investments.
Although the major benefit of debt financing is easy to observe—the tax shield—many of the indirect costs of debt financing can be quite subtle and difficult to observe. Describe some of these
Which of the following industries have low optimal debt levels according to the tradeoff theory?Which have high optimal levels of debt?a. Tobacco firmsb. Accounting firmsc. Mature restaurant chainsd.
According to the managerial entrenchment theory, managers choose capital structure so as to preserve their control of the firm. On the one hand, debt is costly for managers because they risk losing
During the Internet boom of the late 1990s, the stock prices of many Internet firms soared to extreme heights. As CEO of such a firm, if you believed your stock was significantly overvalued, would
What options does a firm have to spend its free cash flow (after it has satisfied all interest obligations)?appendix
ABC Corporation announced that it will pay a dividend to all shareholders of record as of Monday, April 2, 2012. It takes three business days of a purchase for the new owners of a share of stock to
Describe the different mechanisms available to a firm to use to repurchase shares.appendix
RFC Corp. has announced a $1 dividend. If RFC’s price last price cum-dividend is $50, what should its first ex-dividend price be (assuming perfect capital markets)?appendix
EJH Company has a market capitalization of $1 billion and 20 million shares outstanding. It plans to distribute $100 million through an open market repurchase. Assuming perfect capital markets:a.
Suppose the board of Natsam Corporation decided to do the share repurchase in Problem 7 part ( b), but you, as an investor, would have preferred to receive a dividend payment. How can you leave
Suppose you work for Oracle Corporation, and part of your compensation takes the form of stock options. The value of the stock option is equal to the difference between Oracle’s stock price and an
The HNH Corporation will pay a constant dividend of $2 per share, per year, in perpetuity.Assume all investors pay a 20% tax on dividends and that there is no capital gains tax. Suppose that other
Using Table 17.2, for each of the following years, state whether dividends were tax disadvantaged or not for individual investors with a one-year investment horizon:a. 1985b. 1989c. 1995d. 1999e.
What was the effective dividend tax rate for a U.S. investor in the highest tax bracket who planned to hold a stock for one year in 1981? How did the effective dividend tax rate change in 1982 when
The dividend tax cut passed in 2003 lowered the effective dividend tax rate for a U.S. investor in the highest tax bracket to a historic low. During which other periods in the last 35 years was the
You purchased CSH stock for $40 one year ago and it is now selling for $50. The company has announced that it plans a $10 special dividend. You are considering whether to sell the stock now, or wait
At current tax rates, which of the following investors are most likely to hold a stock that has a high dividend yield:a. individual investors,b. pension funds,c. mutual funds,d. corporations appendix
Que Corporation pays a regular dividend of $1 per share. Typically, the stock price drops by$0.80 per share when the stock goes ex-dividend. Suppose the capital gains tax rate is 20%, but investors
A stock that you know is held by long-term individual investors paid a large one-time dividend.You notice that the price drop on the ex-dividend date is about the size of the dividend payment.You
Assume capital markets are perfect. Kay Industries currently has $100 million invested in shortterm Treasury securities paying 7%, and it pays out the interest payments on these securities each year
Redo Problem 22, but assume that Kay must pay a corporate tax rate of 35%, and investors pay no taxes.appendix
Harris Corporation has $250 million in cash, and 100 million shares outstanding. Suppose the corporate tax rate is 35%, and investors pay no taxes on dividends, capital gains, or interest income.
Redo Problem 22, but assume the following:a. Investors pay a 15% tax on dividends but no capital gains taxes or taxes on interest income, and Kay does not pay corporate taxes.b. Investors pay a 15%
Use the data in Table 15.3 to calculate the tax disadvantage of retained cash in the following:a. 1998b. 1976 appendix
Explain under which conditions an increase in the dividend payment can be interpreted as a signal of the following:a. Good newsb. Bad news appendix
Berkshire Hathaway’s A shares are trading at $120,000. What split ratio would it need to bring its stock price down to $50?appendix
Suppose the stock of Host Hotels & Resorts is currently trading for $20 per share.a. If Host issued a 20% stock dividend, what will its new share price be?b. If Host does a 3:2 stock split, what will
Explain why most companies choose to pay stock dividends (split their stock).appendix
When might it be advantageous to undertake a reverse stock split?appendix
After the market close on May 11, 2001, Adaptec, Inc., distributed a dividend of shares of the stock of its software division, Roxio, Inc. Each Adaptec shareholder received 0.1646 share of Roxio
Explain whether each of the following projects is likely to have risk similar to the average risk of the firm.a. The Clorox Company considers launching a new version of Armor All designed to clean
Suppose Caterpillar, Inc., has 530 million shares outstanding with a share price of $218.75, and $38 billion in debt. If in three years, Caterpillar has 650 million shares outstanding trading for
In 2022, Costco Wholesale Corporation had a market capitalization of $238 billion, debt of$6.5 billion, cash of $12 billion, and EBIT of about $8 billion. If Costco were to increase its debt by $1
Acort Industries has 10 million shares outstanding and a current share price of $40 per share.It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has
Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.5%, a debt cost of capital of 7%, a marginal corporate tax rate of 25%, and a debt-equity ratio of 2.6. Suppose Goodyear
You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The up-front investment required to launch the product line is $10 million. The product will generate free
Consider Alcatel-Lucent’s project in Problem 6.a. What is Alcatel-Lucent’s unlevered cost of capital?b. What is the unlevered value of the project?c. What are the interest tax shields from the
Consider Alcatel-Lucent’s project in Problem 6.a. What is the free cash flow to equity for this project?b. What is its NPV computed using the FTE method? How does it compare with the NPV based on
In year 1, AMC will earn $1600 before interest and taxes. The market expects these earnings to grow at a rate of 3% per year. The firm will make no net investments (i.e., capital expenditures will
XL Sports is expected to generate free cash flows of $10.9 million per year. XL has permanent debt of $40 million, a tax rate of 25%, and an unlevered cost of capital of 10%.a. What is the value of
How does the assumption on future improvements in working capital affect your answer to Problem 13?
Use your answers from Problems 17 and 18 to infer the value today of the projected improvements in working capital under the assumptions that Ideko’s market share will increase by 0.5%per year and
Redo Problem 13, but assume that Kay must pay a corporate tax rate of 35%, and that investors pay no taxes.
What is AMC’s share price prior to the share repurchase?AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding
What would AMC’s share price be after the repurchase if its enterprise value goes up? What would AMC’s share price be after the repurchase if its enterprise value declines?AMC Corporation
Suppose AMC management expects good news to come out. Based on your answers to Problems 17 and 18, if management wants to maximize AMC’s ultimate share price, will they undertake the repurchase
Given your answer to Problem 19, what effect would you expect an announcement of a share repurchase to have on the stock price? Why?AMC Corporation currently has an enterprise value of $400 million
In your role as a consultant at a wealth management firm, you have been assigned a very powerful client who holds 1 million shares of Cisco Systems, Inc., purchased on February 28, 2003. In
What is the difference between internal growth rate and sustainable growth rate?
Jim’s expects sales to grow by 10% next year. Using the percent of sales method, forecast (see MyFinanceLab for the data in Excel format)·.a. Costsb. Depreciationc. Net incomed. Cashe. Accounts
Assume that Jim’s pays out 90% of its net income. Use the percent of sales method to forecast (see MyFinanceLab for the data in Excel format):a. Stockholders’ equityb. Accounts payable Use the
What is the amount of net new financing needed for Jim’s (see MyFinanceLab for the data in Excel format)?Use the following income statement and balance sheet for Jim ’s Espresso: Income Statement
If Jim’s adjusts its payout policy to 70% of net income, how will the net new financing change?Use the following income statement and balance sheet for Jim ’s Espresso: Income Statement Balance
Global expects sales to grow by 8% next year. Using the percent of sales method, forecast (see MyFinanceLab for the data in Excel format):a. Costs except depreciationb. Depreciationc. Net incomed.
What is the amount of net new financing needed for Global (see MyFinanceLab for the data in Excel format)?Use the following income statement and balance sheet for Global Corp.: Figures in $ millions
If Global decides that it will limit its net new financing to no more than $9 million, how will this affect its payout policy (see MyFinanceLab for the data in Excel format)?Use the following income
The following information is from Dell’s 2012 Income statement and balance sheet (numbers are in $ millions). Use it to compute Dell’s cash conversion cycle. Sales 56,940 Cost of Goods Sold
Describe “just-in-time” inventory management.

Showing 1900 - 2000 of 5426

First
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Last

Services

Sitemap
Fun
Definitions
Become Tutor
Study Help Categories
Recent Questions
Expert Questions

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Campus Ambassador

Secure Payment

Download Our App

© 2024 SolutionInn. All Rights Reserved