Finance and Question Essay - 1396 Words

Question 1 (5 points) In a world with no frictions (i.e., taxes, etc.), having debt is always better because it increases the value of the firm/project. Your Answer Score Explanation True. False. Correct 5.00 Correct. You understand the irrelevance of financing. Total 5.00 / 5.00 Question Explanation Fundamental question about value creation. Question 2 (5 points) The return of equity is equal to the return on debt of a project/firm Your Answer Score Explanation Sometimes true. Always true. Never true. Correct 5.00 Correct. Equity is always riskier. Total 5.00 / 5.00 Question Explanation Financings effects on equity. Question 3 (10 points) Suppose the expected returns on equity of two†¦show more content†¦Alpha, Inc., has debt that is viewed by the market as risk-less with a market value of $500 million. Beta, Inc., has no debt. Both firms are expected to generate cash flows of $100 million per year for the foreseeable future and the market value of the equity of Beta, Inc is $1 billion. Estimate the return on equity of Alpha, Inc. Assume there are no taxes, and the risk-free rate is 5%. (No more than two decimals in the percentage interest rate, but do not enter the % sign.) Answer for Question 7 You entered: 20 Your Answer Score Explanation 20 Incorrect 0.00 Total 0.00 / 10.00 Question Explanation A mechanical problem if you understand the effects of financing and use all information. Question 8 (10 points) Banana, Inc. has had debt with market value of $0.5 million that has paid a 5% coupon and has had an expiration date that is far, far away. The expected annual earnings before interest and taxes for the firm are $1 million and the firm has not grown, nor does it have plans for any growth. The firm however has just raised more equity to retire all its debt. If the required rate of return to equity-holders (after the capital structure change) is now 10%, what is the market value of the firm? Assume there are no taxes. (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.) Answer for Question 8 You entered: 10000000 Your Answer Score ExplanationShow MoreRelatedFinance Questions723 Words   |  3 Pages Provide detailed descriptions and show all calculations used to arrive at solutions for the following questions: 1. Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. The hospital is exploring a lockbox arrangement that promises to cut the six days to one day. If these funds released by the lockbox arrangement can be invested at 8 percent, what will the annual savings be? Assume theRead MoreQuestion Finance950 Words   |  4 PagesEXERCISE 5 (RISK AND RETURN) 1. Perry purchased 100 shares of Ferro, Inc. common stock for $25 per share one year ago. During the year, Ferro, Inc. paid cash dividends of $2 per share. The stock is currently selling for $30 per share. If Perry sells all of his shares of Ferro, Inc. today, what rate of return would he realize? Answer: Realized return = = 28% 2. Tim purchased a bounce house one year ago for $6,500. During the year it generated $4,000 in cash flow. If Time sells the bounceRead MoreQuestions on Finance2789 Words   |  12 Pagesï » ¿FIN 301 HW Chapter 1 (Odds 1-17) 1. Define shareholder wealth. Explain how it is measured Shareholder wealth is represented by the market price of a firm’s common stock. It is measured by the market value of the shareholders’ common stock holdings 2. Which type of corporation is more likely to be a shareholder wealth maximizer -one with wide ownership and no owners directly involved in the firms management or one that is closely held. A closely held corporation 3. It has been argued that shareholderRead MoreQuestions on Finance1947 Words   |  8 Pagespreferred stock, kps, that should be included in the computation of the SW Inks weighted average cost of capital (WACC)? a. 8.0% b. 4.8% c. 3.2% d. The dividend growth rate is needed to compute kps; so not enough information is given to answer this question. e. None of the above is correct. ANS: A DIF: Medium OBJ: TYPE: Problem TOP: Cost of preferred stock Rollins Corporation Rollins Corporation is constructing its MCC schedule. Its target capital structure is 20 percent debt, 20 percent preferredRead MoreFinance Questions4007 Words   |  17 Pagesmaturity date. If bonds of similar risk are currently earning 8 percent, the firms bond will sell for ________ today. A) $1,000 B) $805.20 C) $851.50 D) $1,268.20 74. On January 1, 2002, Zheng Corporation will issue new bonds to finance its expansion plans. 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After a decade of scandal and corporate collapses, the public recognizes the direct connection between positive corporate citizenship and the public good. This is highlighted by a growing push for greater corporate transparency in aspectsRead MoreBusiness Finance: Questions1612 Words   |  7 Pagesï » ¿Question 1 Reliable Gearing currently is all-equity financed. It has 10,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $200,000 with the proceeds used to buy back stock. The high debt plan would exchange $400,000 of debt for equity. The debt will pay an interest rate of 10%. The firm pays no taxes. a. What will be the debt-to-equity ratio after each possible restructuring? b. If earningsRead MoreFinance Questions and Answers6262 Words   |  26 PagesTUTORIAL 1 - TUTORIAL DISCUSSION QUESTIONS 2. (a) Discuss the role of money in a financial system. †¢ money is a financial asset that facilitates financial and economic transactions †¢ a medium of exchange—swapped for goods and services †¢ a store of value—wealth is held or measured in money terms †¢ a standard of deferred payment—used to record indebtedness †¢ a unit of account—transactions are priced in money terms †¢ currency is generally divisible, portable and durable (b) Does money