Moral hazard associated with the principal-agent problem

Assignment Help Financial Management
Reference no: EM131339685

Starting in the 1980's, there has been a large increase in the issuance of bonds relative to issuance of stock by corporations. Explain why this might be a response of stockholders to the moral hazard associated with the principal-agent problem.

Reference no: EM131339685

Questions Cloud

Obligations of buyers and sellers of futures contracts : Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.
Contribution income statement-cost-volume-profit graph : New York Tours (NYT) provides daily sightseeing tours that include transportation, admission to selected attractions, and lunch. Ticket prices are $85 each. During June 2013, NYT provided 3,000 tours. Prepare a contribution income statement for June...
What is future value of this cash flow stream : Assume that your required rate of return is 12 percent and you are given the following stream of cash flows: If payments are made at the end of each period, what is the future value of this cash flow stream at the end of the 6th year?
From the perspective of the efficient markets hypothesis : Suppose that research shows that by buying stocks issued by companies whose names begin with the letter G investors can earn above-normal returns in even-numbered years. From the perspective of the efficient markets hypothesis, this is further eviden..
Moral hazard associated with the principal-agent problem : Starting in the 1980's, there has been a large increase in the issuance of bonds relative to issuance of stock by corporations. Explain why this might be a response of stockholders to the moral hazard associated with the principal-agent problem.
Taking place in the primary or secondary markets : Would you classify the following transaction as taking place in the primary or secondary markets? Why? Nationwide Insurance sells $5.5 million of Apple common stock.
Expected incremental cash flow related to working capital : Six Twelve, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue at the new store is $660,000. What is the expected incremental cash flow related to working capital when the store is opened?
Calculate the annual after-tax operating cash flow for years : FITCO Inc. is the manufacturer of exercise machines and is considering producing a new line of equipment in an effort to increase its market share. The new production line will cost $1,450,000 for manufacturing the parts and an additional $130,000 is..
Which one of the points is the optimal point : Graphically solve the following linear programming (LP) problem: Which one of the following points is the optimal point?

Reviews

Write a Review

Financial Management Questions & Answers

  He need to contribute per month to reach his goal

Ross has decided that he wants to build enough retirement wealth that, if invested at 7 percent per year, will provide him with $4,200 of monthly income for 30 years. To date, he has saved nothing, but he still has 20 years until he retires. How much..

  What is the bonds capital gain or loss yield

Ezzell Enterprises' noncallable bonds currently sell for $939.00. They have a 5-year maturity, semi-annual coupon rate of 12.00%, and a par value of $1000. What is the bond's capital gain or loss yield?

  Dividend-increase event and dividend-cut event

Explain why stock prices shift around the declaration dates are expected or unexpected for each of the 3 dividend events (dividend-increase event, dividend-cut event, and unchanged-dividend event).

  The use of accelerated depreciation

The use of accelerated depreciation

  What is weighted average cost of capital

The Black Bird Company plans a $45 million expansion. The expansion is to be financed by selling $35 million in new debt and $10 million in new common stock. The before tax required rate of return on debt is 7% and the required rate of return on equi..

  Firm value if cash flows are expected to grow at annual rate

You are evaluating the potential purchase of a small business currently generating $45,000 of after-tax cash flow (D0 = $45,000). On the basis of a review of similar-risk investment opportunities, you must earn an 19% rate of return on the proposed p..

  What is the payback based on cashflow

A proposed project lasts 5 years and has an initial fixed asset investment of 2 million dollars, depreciated straight line to zero over the project life. Has an initial investment in networking capital of 200,000. Tax rate is 34%. There is a required..

  What must the expected return on this stock be

A stock has a beta of .95, the expected return on the market is 21 percent, and the risk-free rate is 4.00 percent. What must the expected return on this stock be?

  Investment decision based on the theoretical value of firm

The final task in this section requires you to make an investment decision based on the theoretical value of a firm. The company you will consider investing in is Woodside Petroleum (WPL). You should assume that the equity market risk premium is 5%, ..

  What is the projects MIRR

Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR?

  Interest is credited at an annual effective rate

The proceeds of a 10,000 death benefit are left on deposit with an insurance company for seven years at an effective annual interest rate of 5%. The balance at the end of seven years is paid to the beneficiary in 120 equal monthly payments of X, with..

  What is the capital gains yield of this stock

Your analyzing the stock of a certain company. The most recent dividend paid was $3 per share. The company's discount rate is 10%, and the firm is expected to grow at 3% per year forever. What is the capital gains yield of this stock?

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