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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.
PROBLEMS OF LOWER INCOME COUNTRIES There are vast income and wealth disparities in world we live in. Approximately one-fourth of the world’s population accounts for the three-f
Why are countries that let people respond to the inborn profit motive better off than those countries that do not?
elasticity concept occupies a central place in policy formulation. Explain in details.
(a) Give basic criteria for selecting an outsourcing supplier. (b) What do you understand by Request for Information and Request for Proposal (RFP)? (c) List down question
Consider another company, Lateco, which has just received its fifth round of investment. These rounds have been: Series A: CP ($5M FV) or converts to 5M shares of common. Se
elasticity concept occupies a central place in policy formulation
QUESTION (a) What are the main types of unemployment? (b) Mauritius has been facing an alarming rate of unemployment during the last 5 years (i) What reasons could explai
Why does a production possibilities frontier with increasing opportunity costs have a bowed-out shape?
First, explain the concepts of income, wealth and money and show how each is related to the other. Next, explain the concept of the monetary base and indicate its economic signific
There are two agents, A and B. Both have preferences represented by a von Neumann-Morgenstern utility function u(c s j ) = ln (c s j ), where c s j is consumption of agent j in
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