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The M&M theory states it does not make any difference from an economist's view whether a firm raises financing as equity or debt. However floatation costs are more for equity than debt and interest on debt is tax deductible whereas dividends are not. How do you explain this difference between the market realities and the M&M theory? Further given the experience of Metalgesellschaft and Enron what business risks are related to excessive debt not accounted for by M&M? As explained in previous lessons, all Bubbles start for a logical reason but when they collapse scams and scandals are often exposed. How does Enron's rise and collapse illustrate this proposition?
Antiques R Us is a mature manufacturing firm. The company just paid a $15 dividend, but management expects to reduce the payout by 12 percent per year indefinitely. Required : If you require an 19 percent return on this stock, what will you pay fo..
The common stock obtained upon conversion is selling for $54 per share. What is the convertible bond's conversion premium?
Computation of effective annual yield bond value Assume that the 5-year bond paying $40 semi-annually is purchased at par
When Britain announced its entry in the exchange rate mechanism of EMS on October 5, 1990, the price of British gilts (long term government bonds) soared and sterling rose in value.
A portfolio manager has a $10 million portfolio, which consists of $1 million invested in ten separate stocks. The portfolio beta is 1.2. The risk-free rate is 5 percent and the market risk premium is 6 percent.
Hazel buy a new business asset on November 30, 2007, at a cost of $100,000. This was only asset acquired through Hazel during 2007. On January 2008, Hazel placed asset in service.
General Mills, Corporation, the large manufacturer of packaged foods, reported the following in its annual report for year ending May 25, 2008;
What is Susan's incremental profit if she chooses option 3 over option 2?
What required rate of return for this stock would result in a price per share of $40 and if Sonik has an earnings and dividend growth rate of 11%, what required rate of return would result in a price per share of $40?
Consider two firms A and B that are identical in all respects except capital structure. Firm A has $160 million in equity outstanding and $40 million in bonds outstanding. Firm B has $200 million in equity outstanding and $0 million in bonds outs..
Why does the tax rate for a comprehensive consumption tax that is designed to replace an equal-yield comprehensive income tax have to be higher than the income tax rate? What is the impact on savings and excess burden in the investment markets?
J Hennessy Corporation is entirely financed through common stock and has a beta of 1.2. The stock has a value earnings multiple of ten and is priced to offer a 10% expected rate of return.
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