Explain the two Irrelevance Propositions advanced by Modigliani and Miller (M&M) in 1958. Give an intuitive argument for why these propositions are plausible. In contrast to the position of M&M, what is an Optimal Capital Structure? Describe the Static Trade-Off Theory that resulted from a synthesis of the work of M&M and their critics, carefully explain the elements that are being weighed in the decision.

Foreign operations have predominant functional currency : Determine whether each company’s foreign operations have a predominant functional currency. |

Agency conflicts-cost may produce optimal capital structure : Describe how the trade-offs between the different classes of Agency Conflicts and Costs may produce an Optimal Capital Structure in the context of Jensen |

What is the cash flow for at year : BMI corporation is evaluating relevant cash flows for a new machine. What is the cash flow for at year 0,1,2,3? |

Calculate the optimal replacement cycle for the machine : The residua value can be ignored. The cost of capital of the company is 11% per year. calculate the optimal replacement cycle for the machine. |

Describe the static trade-off theory : Describe the Static Trade-Off Theory that resulted from a synthesis of the work of M&M and their critics, |

What is rate of return on this investment : By buying this annuity, your agent promises that you will receive payments of $1,225 month for the next 30 years. What is the rate of return on this investment? |

Calculate the cost of common stock and preferred stock : Domelan Van Lines is interested in measuring its cost of capital. Calculated the cost of preferred stock. Calculate the cost of common stock. |

Decrease across the board on all equity securities : Bob is an optomist and he expects the required rate of return to decrease across the board on all equity securities (stocks), |

Forecasts that inflation is going to increase : Inflation was 2% last year. Thomas forecasts that inflation is going to increase to 4% this year. |

## Toward principal of loan-how much will go toward interesthow much of the payment will go toward the principal of the loan and how much will go toward? interest? |

## Make a series of deposits into a interest bearing accountYou plan to make a series of deposits into a interest bearing account earning 11%. You will deposit $2000 today, $3000 two years from today, and $9000 five years from today. If you withdraw $2000 four years from today and $5000 seven years from today.. |

## The yield on romanian bonds or both price and yieldWhen the article reports that "Romanian bonds tumbled," what fell: the price of Romanian bonds, the yield on Romanian bonds, or both the price and the yield? |

## How much are the bonds worthA $1,000 par value bond pays a coupon rate of 8.2 percent. The bond makes semiannual payments, and it matures in four years. If investors require a 10 percent return on this investment, what is the bond's price? |

## Results of exchange rate changesEarly in September 1983, it took 255 Japanese yen to equal $1. Nearly 28 years later, in August 2011, that exchange rate had fallen to 115 yen to $1. Assume that the price of a Japanese-manufactured automobile was $11,000 in September 1983 and that i.. |

## Bond prices and interest rate changesBond Prices and Interest Rate Changes (LG5) A 7.8 percent coupon bond with 18 years left to maturity is priced to offer a 6.40 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What would be the total.. |

## Expected net present value of this purchase opportunityStu can purchase a one-bedroom house near his college today for $110,000, including the cost of some minor repairs. He expects to be able to resell it in four years for $150,000 if he just puts a little effort into cleaning up the property. At a disc.. |

## What is the equity multiplierUse the following information to answer this question. Windswept, Inc. 2010 Income Statement ($ in millions) Net sales $ 10,050 Less: Cost of goods sold 7,700 Less: Depreciation 395 Earnings before interest and taxes $ 1,955 Less: What is the equity .. |

## Yield curve in the wall street journalYou note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? |

## About the certificate of depositKyle has $1,000 in cash received for high school graduation gifts from various relatives. He wants to invest it in a certificate of deposit (CD) so that he will have a down payment on a car when he graduates from college in five years. His bank will .. |

## Three zero coupon risk-free discount bonds of oneThree zero coupon risk-free discount bonds of one, two and three year term to maturity are selling for, respectively, $950, $890 and $800. What would be the selling price today of a 10% coupon bond of 3 year maturity (maturity value $1,000)? |

## What is the current yield on the bondsThe Firm, Inc. has 8.6% coupon bonds on the market with eight years to maturity. The bonds make semi-annual payments and currently sell for 107.4 percent of par. What is the current yield on the bonds? |

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