Question
If you were a bondholder lending to a firm and you were worried that stockholders would take advantage of you, which of the following actions
If you were a bondholder lending to a firm and you were worried that stockholders would take advantage of you, which of the following actions would concern you the most? (Pick only one) Select one: a. Expansion into a risky new business b. A new stock issue c. Accumulation of cash in the company d. A reduction in debt e. A cut in the dividends paid to stockholders
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Lavazza Coffee is a publicly traded company that sells coffee beans. It has 10 million shares outstanding, trading at $5/share, no debt or cash and has a beta of 0.75. It is considering borrowing $25 million and investing in coffee shops. If the beta of coffee shops/restaurants is 1.20, estimate the beta for Lavazzas equity after the expansion. (The marginal tax rate is 40%). Select one: a. 1.08 b. 1.17 c. 1.56 d. 1.21 e. 0.90
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