Which of the following is NOT one of M-M’s perfect capital market assumptions? a. no taxes...
Which of the following is NOT one of M-M’s perfect capital market assumptions?
a. no taxes
b. individuals can borrow or lend at the same rate
c. every party has equal access to information
d. bankruptcy costs are reasonably low
Homework Answers
d. bankruptcy costs are reasonably low
There are no bankruptcy costs as per MM assumptions. Other points are also part of MM assumptions.
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Assume a perfect capital market but with taxes (tax rate is
35%). Euphon Inc. does not currently have debt in its balance
sheet. Euphon’s equity value is $100 million and has $20 million of
cash. There are currently 20 million shares outstanding. Euphon is
considering taking on $40 million debt which will be used entirely
to repurchase shares. Assume that the new debt will be
riskfree.
1. What should the minimum repurchase offer price be in order
to attract current...
The "perfect information" assumption of perfect competition includes all of the following except one. Which one? Select one: a. Consumers know their preferences. b. Consumers know their income levels. c. Consumers know the prices available. d. Consumers can anticipate price changes. e. Firms know their costs, prices and technology.
Capital Structure Theory Modern capital structure theory began in 1958 when Professors Modigliani and Miller (MM) published a paper that proved under a restrictive set of assumptions that a firm's value is unaffected by its capital structure. By indicating the conditions under which capital structure is irrelevant, they provided dues about what is required to make capital structure relevant and impact a firm's value. In 1963 they wrote a paper that included the impact of corporate taxes on capital structure....
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