(TCO B) Which of the following statements concerning the MM extension with growth is not correct?
1. (TCO B) Which of the following statements concerning the MM extension with growth is not correct?
(a) The tax shields should be discounted at the unlevered cost of equity.
(b) The value of a growing tax shield is greater than the value of a constant tax shield.
(c) For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM’s original (with tax) assumptions.
(d) For a given D/S, the WACC is less than the WACC under MM’s original (with tax) assumptions.
(e) The total value of the firm increases with the amount of debt. (Points : 20)
Question 2. 2. (TCO D) Which of the following statements about listing on a stock exchange is most correct?
(a) Listing is a decision of more significance to a firm than going public.
(b) Any firm can be listed on the NYSE as long as it pays the listing fee.
(c) Listing provides a company with some free advertising, and it may enhance the firm’s prestige and helps it do more business.
(d) Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.
(e) The OTC is the second largest market for listed stock, and it is exceeded only by the NYSE. (Points : 20)
Question 3. 3. (TCO E) Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm has the option to buy these tools. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at interest rate of 10% and buy the tools. The loan payments would be made at the end of each year. If it decides to lease or it can make three equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan with interest paid at the end of the year. The firm’s tax rate is 40%. The Total Cash Outflows from the Cost of Purchase are the following: (Year 1)+208; (Year 2) +208; (Year 3) -4,592; all occurring at the end of respective years. Calculate the leasing cash outflows, and compare the Present Values. What is the net advantage to leasing (NAL), in thousands?
(Suggestion: Delete three zeros from dollars and work in thousands.)
(e) $123 (Points : 20)
Question 4. 4. (TCO I) Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the United States, 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate?
(a) 1 pound = $1.8000
(b) 1 pound = $1.6582
(c) 1 pound = $1.0000
(d) 1 pound = $0.8500
(e) 1 pound = $0.6031 (Points : 20)
Question 1. 1. (TCO C) D. Paul Inc. forecasts a capital budget of $725,000. The CFO wants to maintain a target capital structure of 45% debt and 55% equity, and it also wants to pay dividends of $500,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?
Net Income Payout
(a) $898,750 55.63%
(b) $943,688 58.41%
(c) $990,872 61.43%
(d) $1,040,415 64.40%
(e) $1,092,436 67.62% (Points : 20)
Question 2. 2. (TCO F) Curry Corporation is setting the terms on a new issue of bonds with warrants. The bonds will have a 30-year maturity and annual interest payments. Each bond will come with 20 warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $10.00. A similar straight-debt issue would require a 10% coupon. What coupon rate should be set on the bonds with warrants so that the package would sell for $1,000?
(e) 8.27% (Points : 20)
Question 3. 3. (TCO B) Which of the following statements is correct, holding other things constant?
(a) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt.
(b) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
(c) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
Question 4. Which of the following statements is most correct?
(a) The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan.
(b) The basic doctrine of fairness states that all debt holders must be treated equally.
(c) Because the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the public interest is not a relevant concern.
(d) Although a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely.
(e) To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.
Why Work with Us
Top Quality and Well-Researched Papers
We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.
Professional and Experienced Academic Writers
We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.
Free Unlimited Revisions
If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.
Prompt Delivery and 100% Money-Back-Guarantee
All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.
Original & Confidential
We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.
24/7 Customer Support
Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.
No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.
Admission Essays & Business Writing Help
An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.
Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.
If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.