cost of capital
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Topic 1:When the WACC formula is applied to cost of capital the outcome seems toimply that debt is “cheaper” than equity; this implies that a firm with more debt could use a lower discount rate. Does this make sense? Explain your answer.
Topic 2:
Corporations often consume natural resources in our society. Overuse or mining of such natural resources can lead to problems in the natural world. In addition, our society has been using technology to improve a corporation’s position, either financially or through improved resource allocation. In this assignment you are to research a real world issue and create a solution to the problem. You should:
1. Identify a problem in our natural world that is the result of overuse or by over mining of one or more natural resources to advance a corporation.
2. Prepare a summary that includes the negative effects on the natural world, how technology was used, and the benefit to the corporation.
3. Add an additional summary to propose a solution using technology to solve the problem. Explain how the proposed solution continues to benefit the corporation financially. Your summary should also show how this solution could create a significant improvement in the natural world.
The goal of this assignment is to use your critical thinking skills to identify a problem and propose a solution that leaves the corporation and the environment in the best shape possible with the help of technology. This discussion will require that you include resources using APA format.
According to M&M Proposition 2, which of the following conditions would maximize the value of a firm?
| If the cost of debt remains unchanged, the value of a firm would be maximized at a very low debt ratio. |
| If the cost of debt changes, the value of a firm would be maximized at a high debt ratio. |
| If the cost of debt changes, the value of a firm would be maximized with a very low debt ratio. |
| If the cost of debt remains unchanged, the value of a firm would be maximized at a high debt ratio. |
The fraction of a firm’s total financing that is represented by debt is a measure of its
| financial security. |
| efficiency. |
| operating leverage. |
| financial leverage. |
Financial policy matters because
| taxes matter. |
| transactions costs and information costs exist. |
| capital structure choices affect a firm’s real investment strategy. |
| All of these. |
A firm plans to issue $700,000 worth of debt at a YTM of 7.5%. The debt is trading at par. The firm’s marginal corporate tax rate is 30%. What is the present value of the tax savings in perpetuity?
| $210,000 |
| $490,000 |
| $280,000 |
| $ 15,750 | |||||||||||||||||||||||||||||||||||||||||||||||||
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In a world with taxes, the value of a leveraged firm equals the value of an unleveraged firm plus
Besides providing an interest tax shield, the inclusion of debt in a firm’s capital structure provides it with all of the following advantages, except
Under which of the following forms of business organization are the owners faced with double taxation?
Which of the following factors does not directly affect the value of a business?
Which of the following factors does not directly affect the value of a business?
Valuations differ between young and mature companies because of all of the following except:
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