What economic field of study explores the problems associated with a firm that arise from a separation of ownership and control and devises ways to resolve them? A) futures and options B) agency theory C) foreign direct investment D) franchising ANSWER Answer: B
Date: September 19th, 2020
Consider two firms that are identical in every way except that one has $15,000 of debt and 500 shares of stock outstanding, while the other is all-equity and has 650 shares of stock outstanding. Assume that the debt is a perpetuity with annual coupons at the rate of 6%. What is each firms’ earnings per […]
Date: September 19th, 2020
If you wish to double your money in 6 years, you must earn an interest rate of about A) 8%. B) 24%. C) 12%. D) 36%. ANSWER C
Date: September 19th, 2020
What are some of the basic beliefs of the anti-globalists? What will be an ideal response? ANSWER Answer: The anti-globalist movement targets multinational corporations as one of the main villains of the globalization phenomenon that they believe is detrimental to the poor countries, their workers, and to disadvantaged people in developed countries. Laissez-faire […]
Date: September 19th, 2020
Globally why are certain types of firms seeking others with poor corporate governance? What will be an ideal response? ANSWER Answer: Hedge funds and private equity firms are very often looking for these poorly performing firms as potential targets for their value-enhancing activities.
Date: September 19th, 2020
Which one of the following is the most common method of overcoming the agency problem in developed countries outside of the U.S. and the U.K? A) concentrated ownership B) currency boards C) hostile takeovers D) foreign direct investment ANSWER Answer: A
Date: September 19th, 2020
Ferris Manufacturing is all equity financed. Current financial data for Ferris is provided in the table below for three states of nature, which correspond with three levels of sales. The CFO of Ferris, Cameron Fry, is considering a change in capital structure. In particular, he is thinking about borrowing $5,000. He will borrow the money […]
Date: September 19th, 2020
Institutional investors play important roles in financial markets. Explain. What will be an ideal response? ANSWER Answer: Institutional investors such as insurance companies, retirement funds, and mutual funds have the ability to help determine security prices, the cost of equity and debt.
Date: September 19th, 2020
The capital budgeting director of Sparrow Corporation is evaluating a project which costs $200,000, is expected to last for 10 years and produce after-tax cash flows, including depreciation, of $44,503 per year. If the firm’s cost of capital is 14% and its tax rate is 40%, what is the projected IRR? A) 8% B) 14% […]
Date: September 19th, 2020
Myopia Camera Stores has a cost of equity of 18% and the market return is 12%. What is the firm’s beta if the risk-free rate is 6%? A) 2.0 B) 1.0 C) 0.8 D) 2.3 E) 1.3 ANSWER A
Date: September 19th, 2020
