Question 1

. Discuss what the following companies should do with their debt policy: a) Company A has a substantially high corporate tax rate b) Company B is a large, established company with a high taxable profit level c) Company C is a newly established company . A company can incur costs of financial distress without ever going bankrupt. Explain how this can happen. . The ABC Ltd has financed a large part of its facilities with long-term debts. There is a significant risk of default, but the company is not on the ropes yet. Explain: i. Why ABC Ltds stockholders could lose by investing in a positive-NPV project financed by an equity issue? ii. Why ABC Ltds stockholders could gain by investing in a negative-NPV project financed by cash? iii. Why ABC Ltds stockholders could gain from paying out a large cash dividend?