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Q. Drawbacks or Criticism of MM Approach?
Risk Perceptions of personal as well as corporate leverages are different: - It is incorrect to presume that 'personal leverage' is a perfect substitute for 'corporate leverage'. Liability of an investor is incomplete in corporate enterprises whereas the liability of an individual borrower is unlimited as even his personal property is likely to be used for payment to lenders.
Therefore the risk to the individual borrower is higher.
(2) Difference in cost of borrowing by the firm and individuals: - The supposition that firms and individuals can borrow at the same rate of interests doesn't hold good in practice.
(3) Convenience: - The corporate borrowing is further convenient to the investor because the formalities and procedures in borrowing are to be observed by corporate.
(4) Institutional Restrictions: - Institutional restrictions rise in the way of a smooth operation of arbitrage process.
Determine the term- Time Value of Money If an individual behaves rationally, then he wouldn't equate money in hand today with same value a year from now. As a matter of fact, h
Potential drawbacks of divestment - There may be some loss of economies of scale. Fixed overheads would have a lower capacity to recover them. - Cash generated may not be
Why is the coefficient of variation a better risk calculates to use than the standard deviation while evaluating the risk of capital budgeting projects? The coefficient of variat
What is the common pattern of cash flows for a share of preferred stock? How does the market define the value of a share of preferred stock, specified these promised cash flows?
Question: (a) The key determinants of investment decisions in the public sector are:- legal, political and financial factors. Show the importance of each determinant when de
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Define intermediation . The monetary system makes it possible for deficit and surplus economic units to come together exchanging funds for securities to their mutual benefit.
The following are considered the major stumbling blocks: The process becomes expensive because of the stamp duty payable. It also
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