Which of the following statements about debt is false? I. Interest payments reduce the scope for waste by management. II. Debt creates the possibility of bankruptcy. III. Debt increases the tendency of shareholders to take gambles. IV. Debt reduces the cash flows that go to government. A) I B) II C) III D) IV E) […]
Date: September 19th, 2020
Treadless Tires Inc is currently all equity financed. It used to be leveraged, but it recently issued 20,000 new shares at $25 per share. The proceeds from the new issue were used to repay all of its debt. Financial details for the current and old capital structures are presented in the table below. Assume that […]
Date: September 19th, 2020
Jungle Cat Petting Zoo Inc is currently all equity financed. It used to be leveraged, but it recently issued 5,000 new shares at $50 per share. The proceeds from the new issue were used to repay all of its debt. Financial details for the current and old capital structures are presented in the table below. […]
Date: September 19th, 2020
Parker’s Barbecue Inc operates a chain of restaurants in the south eastern United States. Parker’s is currently levered. It used to be all-equity, but it recently borrowed and used the money to repurchase 30,000 shares. Financial details for the current and old capital structures are presented in the table below. Assume that Parker’s generates perpetual […]
Date: September 19th, 2020
Tarbox Tobacco Inc is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Tarbox has a 100% payout rate. Tarbox has 1,500 shares outstanding. The stock holders of […]
Date: September 19th, 2020
The Baldwin Locomotive Works Inc manufactures steam locomotives for North American railways. Selected financial information for Baldwin is provided in the table below. The CFO, Matthias Baldwin, wants to distribute $1B of cash by means of an extra dividend. What will the stock price be after the dividend? Baldwin Locomotive Works Inc Selected Financial Information […]
Date: September 19th, 2020
Climax Motors Inc is currently all equity financed, but it is considering a leveraged capital structure, details of which are presented in the table below (under the column labeled ‘Proposed’). Under the proposed capital structure, Climax will use all of the new debt to repurchase (and cancel) shares. Assume that taxes are zero. Assume that […]
Date: September 19th, 2020
Which of the following do not have a principal-agent conflict? A) Shareholders and the Board of Directors B) The Board of Directors and the CEO C) Shareholders and bondholders ANSWER B
Date: September 19th, 2020
The Cramden Bus Company is currently all equity financed, but it is considering a leveraged capital structure, the details of which are presented in the table under the column labeled ‘Proposed’. Assume that the company generates perpetual annual EBIT. Assume that all cash flows occur at the end of the year and we are currently […]
Date: September 19th, 2020
The cash manager at AmFlex Company needs to buy 1,000,000 British pounds to pay a British supplier. A currency broker quotes him a bid-ask rate of ₤.4865-.5116/US$. What will be the dollar cost the 1,000,000 pounds? A) $2,055,499 B) $1,954,652 C) $486,618 D) $511,587 ANSWER Answer: A
Date: September 19th, 2020
