QUESTION wanna get definition of above all 1. Modern finance theory indicates that the assumption of managerial role is to maximize the value of the firm. In other words to maximize the price of the stock. Wealth maximization is preferred due to 4 reasons 1) Building wealth for long term 2) Risk or Uncertainty 3) […]
Date: September 2nd, 2020
QUESTION Great Pumpkin Farms (GPF) just paid a dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 3 percent per year indefinitely. Investors require a 16 percent return on the stock for the first 3 years, a 11 percent return for the next 3 years, and an […]
Date: September 2nd, 2020
QUESTION these are true or false1. Companies can eliminate all risk if they implement enough qualitative and quantitative risk techniques. 1_2. If the beta of Stock A is 1.4, this indicates that the stock is risky in comparison to every stock available.3. Futures and forwards are both contractual agreements ¦ 1. Companies can eliminate all […]
Date: September 2nd, 2020
QUESTION 3. Suppose that a firm has both fixed-rate and floating-rate debt outstanding. What effect will an unexpected decline in interest rates have on the firms times-interest-earned ratio (EBIT/interest paid)? What about the ratio of the market value of debt to that of equity? Would you judge that levera¦ Decline in interest rates will have […]
Date: September 2nd, 2020
QUESTION Current cost of a bond: You know that the after-tax cost of debt capital for Bubbles Champagne is 8.3 percent. If the firm has only one issue of five-year maturity bonds outstanding, what is the current price of the bonds if the coupon rate on those bonds is 11.86 percent? Assume the bonds make […]
Date: September 2nd, 2020
QUESTION Justins Jerky (JJ) has a no debt and a beta of 1.20. The risk-free rate is 4.5% and the market risk premium is 6.5%. JJs tax rate is 35%. JJ wants to change its capital structure to 20% debt and 80% equity. What will be its new beta and its new return on equity […]
Date: September 2nd, 2020
QUESTION Explain what is meant by indirect costs of financial distress. Before we discuss what are the indirect costs associated with financial distress we need to know what actually financial distress is. Financial distress is one situation where company finds it difficult to pay off its creditors, where company borrows excessive funds to finance its […]
Date: September 2nd, 2020
QUESTION Suppose First Main Street Bank, Second republic bank, and third fidelity bank all have excess reserves. The required ratio is 25%. The Federal Reserve buys a government bond worth $900,000 from Brian, a client of First Main Street Bank. He deposits the money in his checking account at First Main Str¦ Going in order […]
Date: September 2nd, 2020
QUESTION Blanchford Enterprises is considering a project that has the following cash flow data. What is the projects payback? Note that a projects projected IRR can be negative in which case it will be rejected.Cash flows:Year 0: -$9651:$4252:$3853:$3454:$3055:$265 Payback period means the number of years required before you earn your initial outflow (i.e. when it […]
Date: September 2nd, 2020
QUESTION Bunyan Lumber, LLC Closing Case: When should the company harvest the forest?Bunyan Lumber, LLC Closing Case: When should the company harvest the forest?Bunyan Lumber, LLC, harvests timber and delivers logs to timber mills for sale. The company was founded 70 years ago by Pete Bunyan. The current CEO¦ I cannot give you a direct […]
Date: September 2nd, 2020
