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1. Default is a legal procedure where the assets of the firm are transferred to the debt-holders. True False
2. Agency problems exist when the company is owned and managed by an individual or group of individuals who work for their best interest, but reduce the value of the company through their actions. True False
3. A company should continue to add debt to the capital structure, up to some point where the tax benefits are overcome by the burden of interest payments, in order to optimize the capital structure. True False
4. At the first class meeting, six main principles of finance were discussed, which were underscored numerous times since the beginning. Explain the role of the Financial Manager in developing and working with each of these principles in the corporation.
Berkshire Hathaway Inc. (NYSE: BRK.A) would like to hedge its $5 million exotic insurance portfolio by using S&P 500 futures. Having heard about your excellent grades in the Derivatives class, Berkshire chairman Warren E. Buffett has hired you as a c..
An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock? a. Adobe Systems = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333. b. Adobe Systems = 0.2, Dow ..
Fly Away, Inc., has balance sheet equity of $5.9 million. At the same time, the income statement shows net income of $885,000. The company paid dividends of $473,475 and has 150,000 shares of stock outstanding. If the benchmark PE ratio is 23, what i..
A stock has an expected return of 11.5 percent, its beta is 1.65, and the expected return on the market is 9.2 percent. What must the risk-free rate be?
Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. State of Economy -Probability of State of Economy -Security Return If State Occurs
Prepare an income statement for 2012 using Microsoft Word or Excel, in good form, starting with income from continuing operations.
Kurz Manufacturing is currently a levered firm with 50M shares outstanding priced at $10.00 per share and 250K bonds outstanding at $1000 per bond (this is also the face value of each bond). What is the market value of Kurz's existing assets? What is..
Acme Home Lending offers home equity loans up to 75% of the home value for its customers. If Sally Johnson has a home valued at $270,000 and a current mortgage of $81,000, how much can she borrow in a home equity loan from Acme?
Orange Computer, Inc.’s stock prices at the end of the last four years were $25, $27.50, $22.50 and $28.75. Each year they paid a dividend of $1 at the end of each year. What are your arithmetic and geometric average time-weighted rates of return? Wh..
Simpson Peripherals earned $0.90 per share in 2005 and $1.52 in 2010. Calculate the annual growth rate in earnings per share over this period.
Joshua Trucking has chosen a new software package tied to satellite global positioning system (GPS), in order to monitor its fleet. The software will be outdated after three years and replaced.
ABC Company purchased $24,914 of equipment 5 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $8,758. What is the aftertax cash flow from this sale if the tax rate is 33 percent? The MACRS allowance perc..
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