NEED A PERFECT PAPER? PLACE YOUR FIRST ORDER AND SAVE 15% USING COUPON:

SOLVED

31) Why do Modigliani and Miller and the Modernists believe that, when taxes are not being considered, the capital structure is irrelevant? A) The price of a business’s shares are derived as much from rational decisions based on the returns to a company as from irrational ones. B) Shareholders will always demand risk compensation equal to the increased returns from borrowing. C) Investors, using borrowed funds to purchase shares in unlevered companies, will equalize the value of levered and unlevered companies. D) Capital structure is a closed system where companies push to increase debt, and, lenders and shareholders push to reduce it resulting in a predetermined equilibrium. E) There will always be sufficient risk adverse, risk neutral and risk seeking investors to invest in a company regardless of the proportion of debt in its capital structure. 32) What is one strategy that a hedge fund uses to maximize shareholder wealth? A) Investing exclusively in select exchange traded funds (ETFs). B) Using correlation coefficients to create perfectly diversified portfolios. C) Investing in low yield, government securities. D) Investing exclusively in market indexes. E) Levering itself by selling short (shares it does not yet own). 33) What would be an important consequence if the CEO of a company required the Finance Department to use a cost of capital rate 2% lower than the true value? A) The company would accept investment projects that would reduce shareholder wealth. B) The company would reject investment projects that would increase shareholder wealth. C) The company would accept investment projects that have a positive net present value. D) The company would reject investment projects that have a negative net present value. E) The company would accept investment projects with a higher internal rate of return. 34) How can dividends over the entire future life of a business be relevant to a short term investor? A) The share price when the investor sells should reflect the present value of all future earnings streams of the company. B) The share price when the investor sells should reflect the present value of all future dividends of the company. C) The share price when the investor sells should reflect the present value of all future earnings per share of the company. D) The share price when the investor sells should reflect the after-tax present value of all future earnings of the company. E) The share price when the investor sells should reflect after-tax the present value of all future dividends of the company. 35) Intelligent Corp. (IC) pays an annual dividend of $2.00 per share. IC announced it will start to grow the dividend by 15% per year from now on. If IC’s shareholders require a 20% return on common shares, what should one share of IC stock sell for? A) $10.00 B) $11.50 C) $15.33 D) $40.00 E) $46.00 36) Intelligent Corp. (IC) has paid an annual dividend of $2.00 per share ever since it was formed ten years ago. Today IC announced it will start to grow the dividend by 15% per year from now on. If IC’s shareholders require a 20% return on common shares, by what percentage should IC’s share price jump according to the dividend-based approach to share valuation? A) 60% B) 120% C) 180% D) 360% E) 480% 37) Light Limited (LL) has assumed its shareholders need a 10% required rate of return. The market return is 15% for next year. Meanwhile, long term government bonds can be purchased with a yield to maturity of 5%. what is the implied beta for LL? A) 0.33 B) 0.50 C) 1.00 D) 1.50 E) 3.00 38) Darktree Inc. has $10 million of 10% bonds outstanding that are valued at $9 million. Darktree’s corporate tax rate is 15%. What is the cost of debt to Darktree? A) 8.5% B) 9.0% C) 9.4% D) 10.3% E) 11.1% 39) UPad Wireless needs to raise $10 million to build another factory to meet the strong demand for its latest product. UPad will either issue 12% bonds at par or common shares that they have determined that investors require a 15% return. The fair value of UPad’s currently outstanding bonds is $5 million, it shares is $5 million, and its preferred shares is $5 million. UPad’s retained earnings is $5 million. The preferred shares also have a 12% dividend. UPad’s tax rate is 30%. What is the minimum hurdle rate UPad should set for this investment project? A) 8.4% if UPad issues bonds to finance the factory. B) 11.7% if UPad issues preferred shares to finance the factory. C) 12.0% if UPad issues bonds or preferred shares to finance the factory. D) 12.6% if UPad issues bonds or preferred shares or common shares to finance the factory. E) 15.0% if UPad issues common shares to finance the factory. 40) In the fifth year of operations both Sea Ltd. and Air Inc. had EBIT of $6 million. At the end of the year, the degree of financial leverage for Sea had decreased by 10% and for Air by 50%. What conclusion can be drawn from this? A) EBIT grew more quickly at Sea than at Air. B) Air has relatively more capital payments than Sea. C) EPS decreased more rapidly at Sea. D) EBIT did not change by much at Air. E) EPS remained at 90% of EBIt at Sea. 41) Liquid Shipping Inc. has developed the following data to help in a decision on whether to issue $40 million in bonds or common shares. If bonds are issued the following projections are made: ROE is 19%, EPS is $2.50, Times interest earned is 3, and the leverage ratio is 40%. If shares are issued, ROE is 11%, EPS is $1.30, Times interest earned is 5, and the leverage ratio is 22%. What is the best conclusion to make concerning this data? A) The company should issue some bonds and some shares because the returns are large enough to outweigh the risk. B) The company should issue shares because the returns are large enough to outweigh the risk. C) The company should issue bonds because the returns are large enough to outweigh the risk. D) The company should not issue bonds because the returns are too small to outweigh the risk. E) The company should issue neither bonds nor shares because the returns are too small to outweigh the risk. 42) An EBIT-EPS indifference chart for Rail Shipping Inc. indicates a breakeven point occurs at EBIT of $100 million. If the company issues shares to finance an expansion, EBIT will be $20 million below the indifference point. If bonds are issued, EBIt will be $30 million below the indifference point. What is the most appropriate conclusion to draw from this data? A) EBIT would have to increase 20% before issuing shares is a better alternative. B) EBIT would have to increase 25% before issuing bonds is a better alternative. C) EBIT would have to increase 30% before issuing shares is a better alternative. D) EBIT would have to increase 43% before issuing bonds is a better alternative.

Solution:

15% off for this assignment.

Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!

Why US?

100% Confidentiality

Information about customers is confidential and never disclosed to third parties.

Timely Delivery

No missed deadlines – 97% of assignments are completed in time.

Original Writing

We complete all papers from scratch. You can get a plagiarism report.

Money Back

If you are convinced that our writer has not followed your requirements, feel free to ask for a refund.