Examples of agency problems

Assignment Help Finance Basics
Reference no: EM13747129

Question 1. Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.5 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7%, a marginal corporate tax rate of 35%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable?

Question 2. Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.1% and its marginal tax rate is 35%.

a. What is Alcatel-Lucent's WACC?

b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows?

Year

    0

   1

    2

   3

FCF

-100

  50

  100

  70

c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part b?

Question 3: What inherent characteristic of corporations creates the need for a system of checks on manager behavior?

Question 4: What are some examples of agency problems?

Question 5: What are the advantages and disadvantages of the corporate organizational structure?

Question 6: Is it necessarily true that increasing managerial ownership stakes will improve firm performance?

Question 7: How can proxy contests be used to overcome a captured board?

Question 8: What is a say-on-pay vote?

Question 9: What are a board's options when confronted with dissident shareholders?

Reference no: EM13747129

Questions Cloud

What amount was transferred to finished goods : During 2013, Durham Manufacturing expected Job No. 51 to cost $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Durham applied overhead based on direct labor cost. Actual production required an overhead cost of $290,000, $550,000 in..
Analyze the florentine codex and the annals of tlatelolco : Analyze the Florentine Codex, the Annals of Tlatelolco, as wellas the excerpts from Oaxaca and Yucatan that best describes the conquest from the perspective of the Indigenous population?
Project on wedding planning : Project on Wedding planning-The learner's project plan may be large and complex. The purpose of the project plan is to meet the needs of the organization by accomplishing the task
Enterprise information systems : Enterprise Information Systems, Technologies, and InfrastructuresWrite a brief, 1 page paper that discusses the topic that you will do your research paper on.  The paper, at a minimum should address the topic that you have selected, which of the 5 fo..
Examples of agency problems : What are some examples of agency problems? What are the advantages and disadvantages of the corporate organizational structure?
Used to make interest payment on outstanding serial bonds : Prepare in general journal form the necessary entries in the governmental activities and appropriate fund journals for each transaction. Explanations may be omitted. For each entry you prepare, name the fund in which the entry should be made. The gen..
Strayer databases to research the advantages : Use the Internet or Strayer databases to research the advantages, features, and common examples of OOP and EDP. Note: You may use the Association for Computing Machinery (ACM) Digital Library to support research on the above topics. Instructions deta..
Entry to adjust inventory to lower of cost of market : When a company uses the perpetual inventory method, which of the following would be the entry to adjust inventory to lower- of- cost- of- market? Debit inventory and credit purchases
Cash inflows and cash outflows for each business activity : Describe two business examples each for the cash inflows and cash outflows for each business activity: Operating activities, investing activities, and (Debt & Equity) Financing activities. Explain how each of these business activities correlates to e..

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Calculate the expected portfolio return

Jamie Wong is planning building an investment portfolio containing two stocks, L and M. Stock L will represent 40 percent of the dollar value of the portfolio

  A municipal bond carries a coupon rate of 7 and is trading

a municipal bond carries a coupon of 7 nbspand is trading at par what would be the equivelant taxable yield off this

  Highland inc has total assets of 16200 net working capital

highland inc. has total assets of 16200 net working capital of3900 owners equity of 8500 and long-term debt of

  Ientify a local health care establishment eg hospital

health services continue to affect the gross domestic product and this dramatic transformation has great demands on

  What is the present value of the annuity

a 10 year annuity pays $5,000 monthly, in arrears. If the required return is 9% APR compounnded monthly for the first 4 years, followed by 6% APR compounded monthly thereafter, what is the present value of the annuity?

  What is the market risk premium

Williamson Tire stock has an expected return of 14% with a beta of 1.2. Assume the CAMP is true.

  What is the marginal cost of borrowing

A bank offers two 30 year, fixed rate, fully amortizing LPMs: an 85% LTV loan at 6%, and an 80% LTV loan at 5.5%. What is the marginal cost of borrowing if the loan is going to be held for 10 years?

  Find out the current value of the bond if present market

twin oaks health center has a bond issue outstanding with a coupon rate of 7 percent and four years remaining until

  Theipoprocessischaracterisedbyinformationasymmetriesexplainh

corporatefinanceassessedassignmentanswerthefollowingquestionwithnomorethan2000wordsatheipoprocessischaracterisedbyinform

  Demonstrate how you can use a ted spread

Demonstrate how you can use a TED (Treasury/Eurodollar) spread, which is a simultaneous long (short) position in a Eurodollar contract and short (long) position in the T-Bill contract, to create a position that will benefit from these views.

  Tonys beach t-shirts has fixed annual operating costs of

tonys beach t-shirts has fixed annual operating costs of 75000. tony retails his t-shirts for 14.99 each and the

  The amortization of flotation costs reduces taxes and thus

new york waste nyw is considering refunding a 50000000 annual payment 14 percent coupon 30-year bond issue that was

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd