17. Your boss would like you to explain something useful you learned from your studies. You...
17. Your boss would like you to explain something useful you learned from your studies. You explain that M&M Proposition I argues that in a world with taxes:
A. the capital structure of a firm does not matter because investors can use homemade leverage.
B. the value of a firm increases as the firm's debt increases because of the interest tax shield.
C. the optimal capital structure is the one that is totally financed with equity.
D. the cost of equity increases as the debt-equity ratio of a firm increases.
E. a firm's WACC is unaffected by a change in the firm's capital structure.
Homework Answers
Your required answer is option B i,e, The value of a firm increases as the firm's debt increases because of the interest tax shield.
since tax rate is dependent on interest on debt and the value of tax shield increase proportionally with debt therefore the value of a firm increases as the firm's debt increase.
I hope this clear your doubt.
Feel free to comment if you still have any query or need something else. I'll help asap.
Do give Thumbs up if you find this helpful.
Add Answer to:
17. Your boss would like you to explain something useful you
learned from your studies. You...
John invested in North Point stock when the firm was unlevered. After that, North Point has...
John invested in North Point stock when the firm was unlevered. After that, North Point has changed its capital structure. The firm now has a debt ratio of.35. To unlever his position, John has to Multiple Choice o borrow some money and purchase additional shares of North Point stock borrow some m o C ) maintain his current equity position as the debt of the firm does not affect him personally o sell 35 percent of his shares of North...
Respecfully--Please answer all if you are willing to help. This is over MM propositions anf optimal...
Respecfully--Please answer all if you are willing to help. This is
over MM propositions anf optimal capital structure theories
QUESTION 1 With perfect capital markets, because different choices of capital structure offer a benefit to investors, the capital structure affects the value of a firm. True False QUESTION 2 Under the assumptions of Modigliani and Miller, a firm's value does not depend on the fraction of its financing that it raises from debt holders vs. equity holders. True False QUESTION...
3) (17 Marks) As a recent MSVU grad, you have been hired by Barrington Inc. to...
3) (17 Marks) As a recent MSVU grad, you have been hired by Barrington Inc. to evaluate its target capital structure. The firm is currently all equity financed and is considering issuing debt and using the proceeds to repurchase some of its common stock. Through an analysis of the firm, you determine that the firm is not growing, and all earnings are paid out as cash dividends. The tax rate is 40%, the current risk-free rate is 6% and the...
Answer any 4 questions. You are advised to be as analytical as possible in your answers A. Explai...
Answer any 4 questions. You are advised to be as analytical as possible in your answers A. Explain the main theoretical underpinnings of minimum cost analysis. B. Discuss how you would reduce the heat loss and energy costs of a building that you own 2. A. Explain the concept of weighted average cost of capital (WACC). B. The firm's cost f capital is affected by two sets of factors - one that is under the firm's control, and the other...
***Would especially like help with #25*** Use the table below for Problems 22 - 25. The...
***Would especially like help with #25***
Use the table below for Problems 22 - 25. The debt and equity columns describe different possible capital structures A-G for Company XYZ. The Method 1-3 columns indicate the WACC for capital structures A-G and are consistent with the Modigliani and Miller Propositions. Structure Total Assets 8000 Equity Method 1 16.13% 13.84% 13.20% 12.24% 11.00% 11.20% 13.00% Method 2 5.49% 6.28% 9.47% 9.72% 9.60% 10.73% 13.00% Method 3 13.00% 13.00% 13.00% 1200 1000 800...
4. In order to receive the special dividend that the firm announced on July 20, 2020,...
4. In order to receive the special dividend that the firm announced on July 20, 2020, what is the latest date on which you have to purchase the firm's stock, which is publicly traded in the US markets only? A) End of Day of the Declaration date B) End of Day of the Ex-dividend date End of Day of the Record date The day before the Ex-dividend date E) The day before the Record date 6. (Let x be the...
Asher, your newly appointed boss, has tasked you with evaluating the following financial data for Atherton...
Asher, your newly appointed boss, has tasked you with evaluating the following financial data for Atherton Corp. to determine how Atherton's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Atherton's value has increased over the past year, a neutral (or "hold') recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended...
Instructions: For each question, please read the argument carefully and discuss why you agree or disagree...
Instructions: For each question, please read the argument carefully and discuss why you agree or disagree with it. You must assess the argument itself rather than other information such as occupations of speakers. Your answer is not subject to any word limit, but a short and concise answer is preferred. Question 1. 10 marks Your financial advisor, Bob, shows two funds, A and B, for your investments and says "I recommend Fund A because its expected return is higher." Do...
My question is Q 8 , cost of capital , parts b and c go on...
My question is Q 8 , cost of capital , parts b and c go on to
another page , thank you !
final 12) 5. so the weighted average cost is Luty lo tance is perw we vrst need the Dost. As in the previous problem, the percentage of equity 15 20 3. so EN XS+ (Din. 1/3 X 16% + 1/3 x 20 anxo L33% If War leeds $30. $30 miton/(1- 20 million after flotation costs, then the...
Just Answers Need ASAP Question 41 You want to create a $65,000 portfolio comprised of two...
Just Answers Need ASAP Question 41 You want to create a $65,000 portfolio comprised of two stocks plus a risk-free security. Stock A has an expected return of 14.2 percent and Stock B has an expected return of 17.8 percent. You want to own $20,000 of Stock B. The risk-free rate is 4.8 percent and the expected return on the market is 13.1 percent. If you want the portfolio to have an expected return equal to that of the market,...
John invested in North Point stock when the firm was unlevered. After that, North Point has changed its capital structure. The firm now has a debt ratio of.35. To unlever his position, John has to Multiple Choice o borrow some money and purchase additional shares of North Point stock borrow some m o C ) maintain his current equity position as the debt of the firm does not affect him personally o sell 35 percent of his shares of North...
Respecfully--Please answer all if you are willing to help. This is
over MM propositions anf optimal capital structure theories
QUESTION 1 With perfect capital markets, because different choices of capital structure offer a benefit to investors, the capital structure affects the value of a firm. True False QUESTION 2 Under the assumptions of Modigliani and Miller, a firm's value does not depend on the fraction of its financing that it raises from debt holders vs. equity holders. True False QUESTION...
3) (17 Marks) As a recent MSVU grad, you have been hired by Barrington Inc. to evaluate its target capital structure. The firm is currently all equity financed and is considering issuing debt and using the proceeds to repurchase some of its common stock. Through an analysis of the firm, you determine that the firm is not growing, and all earnings are paid out as cash dividends. The tax rate is 40%, the current risk-free rate is 6% and the...
Answer any 4 questions. You are advised to be as analytical as possible in your answers A. Explain the main theoretical underpinnings of minimum cost analysis. B. Discuss how you would reduce the heat loss and energy costs of a building that you own 2. A. Explain the concept of weighted average cost of capital (WACC). B. The firm's cost f capital is affected by two sets of factors - one that is under the firm's control, and the other...
***Would especially like help with #25***
Use the table below for Problems 22 - 25. The debt and equity columns describe different possible capital structures A-G for Company XYZ. The Method 1-3 columns indicate the WACC for capital structures A-G and are consistent with the Modigliani and Miller Propositions. Structure Total Assets 8000 Equity Method 1 16.13% 13.84% 13.20% 12.24% 11.00% 11.20% 13.00% Method 2 5.49% 6.28% 9.47% 9.72% 9.60% 10.73% 13.00% Method 3 13.00% 13.00% 13.00% 1200 1000 800...
4. In order to receive the special dividend that the firm announced on July 20, 2020, what is the latest date on which you have to purchase the firm's stock, which is publicly traded in the US markets only? A) End of Day of the Declaration date B) End of Day of the Ex-dividend date End of Day of the Record date The day before the Ex-dividend date E) The day before the Record date 6. (Let x be the...
Asher, your newly appointed boss, has tasked you with evaluating the following financial data for Atherton Corp. to determine how Atherton's value has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Atherton's value has increased over the past year, a neutral (or "hold') recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended...
Instructions: For each question, please read the argument carefully and discuss why you agree or disagree with it. You must assess the argument itself rather than other information such as occupations of speakers. Your answer is not subject to any word limit, but a short and concise answer is preferred. Question 1. 10 marks Your financial advisor, Bob, shows two funds, A and B, for your investments and says "I recommend Fund A because its expected return is higher." Do...
My question is Q 8 , cost of capital , parts b and c go on to
another page , thank you !
final 12) 5. so the weighted average cost is Luty lo tance is perw we vrst need the Dost. As in the previous problem, the percentage of equity 15 20 3. so EN XS+ (Din. 1/3 X 16% + 1/3 x 20 anxo L33% If War leeds $30. $30 miton/(1- 20 million after flotation costs, then the...
Most questions answered within 3 hours.
-
Convert the high level language programming statementts to 80x86
assembly, Assume X=AX and y=BX
for (i=1;...
asked 6 minutes ago -
SoleMate’s Burkins sneakers cost $40 per pair from the supplier
and are sold by SoleMate at...
asked 10 minutes ago -
The movie Moneyball (based on the book by Michael
Lewis) tells the story of Billy Beane,...
asked 9 minutes ago -
A regional highway uses 8 tollbooths that are open to all
vehicles. A chi-square goodness-of-fit test...
asked 12 minutes ago -
In her Semiannual Monetary Policy Report to Congress on July 13,
2017, then Federal Reserve Chair...
asked 12 minutes ago -
Suppose N packets are sent,
and each packet arrives at rate of L/2R to a link....
asked 31 minutes ago -
17. Show the steps involved in reduction of the ketone in fatty
acid synthesis. Which cofactor...
asked 32 minutes ago -
5.61 g of octane, C8H18, reacts with excess oxygen in a bomb
calorimeter. The heat capacity...
asked 36 minutes ago -
The velocity field of a flow is given by V = (2+1) x
y2 i +...
asked 45 minutes ago -
(EPS with
Convertible Bonds) On June 1, 2012, Bluhm Company and
Amanar Company merged to form...
asked 42 minutes ago -
2. Discuss why the study exemplifies one that agrees with The
American Psychological Association’s (APA) Ethical...
asked 46 minutes ago -
Without considering the following capital gains and losses,
Charlene, who is single, has a taxable income...
asked 54 minutes ago