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Problem:
(a) Companies A and B differ only in their capital structure. A is financed by 30 percent debt and 70 percent equity; B is financed 10 percent debt and 90 percent equity. The debt of both companies is risk-free.
(i) Rosencrantz owns 1 percent of the common stock of A. What other investment package would produce identical cash flows for Rosencrantz?
(ii) Guildenstern owns 2 percent of the common stock of B. What other investment package would produce identical cash flows for Guildenstern?
(iii) Show that neither Rosencrantz nor Guildenstern would invest in the common stock of B if the total value of company A were less than that of B.
(b) "Modigliani and Miller totally ignore the fact that as you borrow more, you have to pay higher rates of interest." Explain carefully whether this is a valid objection.
Question 1: (a) Explain, giving examples, the law of diminishing returns, clearly bringing out the relationship between cost curves and product curves in the short run. (
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Does the work of the International Monetary Fund and World Bank overlap? Less developed countries turn to the: • International Monetary Fund to resolve debt repayment, exch
QUESTION (a) Using diagrams where appropriate, explain the concepts of scarcity, choice and opportunity cost. (b) Distinguish between positive and negative externalities, il
I am given that demand formula P=150-3Q, am told I only have 40 tickets to sell and that the MC=0 and I am suppose to figured out how many tickets to sell to maximize total welfare
QUESTION (a) Explain the 3 methods of calculating National Income? (b) Why do all countries in the world calculate their National Income every year, despite all the difficul
Explain how the economic theories applied in business economics
what are the economic problems facing any individual in the economy
Draw a Supply or Demand Diagram A) Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due largely to increases in the price of energy and food
(a) Suppose that the British Pound is quoted at $1.4419-36 and the Swiss Franc is quoted at $0.6250-67. What is the direct quote for the British Pound in Zurich? Note that a direct
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