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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.
What policies can less developed countries follow to resolve their debt problem? Highly indebted countries can resolve by less developed countries: Seek help by internat
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What is capital accumulation? Capital accumulation simply implies an increase into a country is stock or amount of capital over time. It requires net investment, which is inve
In the absence of taxes, subsidies or other distortions, the market demand and supply for bags of cement would be given by Q D = 1500 - 10P and Q S = 140P, respectively, where Q
CHALLEGES FACING BUSINESS ORGNIZATION
discuss the concept of demand for the products that are being consumed by the different consumers
abnormal supply curve
You are evaluating two (mutually exclusive) methods of strip-mining a resource-rich area. The alternatives are very similar, though one important difference is in the scale of the
A. Consider the example of renovating a highway that is in poor shape, with large holes and crumbling shoulders that slow down traffic and pose an accident risk. The costs include
QUESTION 1 (a) What, according to you, are the ergonomic problems associated with the use of visual display units? Describe the measures which can be taken to eliminate these p
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