Which firm has riskier equity? Why?
Q: Assume that the risk-free rate increases, but the market risk premium remains constant. What impact…
A: Risk free rate is free from the risk. Every rate of return given is depends on the risk free rate.
Q: Explain the concept of efficient markets. Are the equity capital markets inefficient?
A: Introduction: The given question is related to the concept of efficient market hypothesis. It is a…
Q: What does the MM theory with no taxes state about the valueof a levered firm versus the value of an…
A: Introduction: The Modigliani Miller theorem is an important element in economic theory; it states…
Q: a. What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1?
A: Beta coefficient shows the systematic risk of the assets. The beta factor shows the systematic risk…
Q: How does additional debt in a firm influence its WACC? its free cash flow (FCF)? the agency costs of…
A: Debt is the presence of additional financial leverage in the total business and it will be having…
Q: According to the trade-off model of capital structure, why is there an optimal capital structure for…
A: There may be an ideal capital structure for a certain firm, according to the trade-off theory of…
Q: it better to finance a company thru debt or thru equity? Why? What are the downside and upside to…
A: A business can raise funds predominantly either by Issuing Equity, or Borrowings Loans, Issuing…
Q: A comparable firm (i.e., same industry and similar operations as our firm) has an equity beta of 1.0…
A: First we need to determine the asset beta of the comparable firm using the formula below:βAsset…
Q: According to Modigliani and Miller, what happens to the cost of equity when the firm increases its…
A: Equity financing is the process of raising money from the investors and give ownership to the equity…
Q: If the financial market is frictionless, the cost of equity is higher than the cost of debt in all…
A: A financial market is a place where people may exchange low-cost financial securities and…
Q: Which of the following statements is CORRECT? a. The capital structure that maximizes the stock…
A: Capital structure refers to the composition of different sources of financing in the capital of the…
Q: Suppose a firm invest in proects that are much riskier than its average investments. Do you think…
A: A firm funds its investments either with shareholders' equity or debt. One of the major criteria…
Q: easier to calculate directly, the expected rate of return on the assets of a firm or the expected…
A: The return on assets states how profitable the assets of company are in generating the revenue. To…
Q: Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than…
A: Debt financing is a cheaper source of finance than equity financing because tax saving on interest.…
Q: Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value…
A: As per the Modigliani & Miller approach the value of firm remains same at different level of…
Q: "If the firm's ROE is too low, the firm's debt ratio must be too low." True or false? Select one: O…
A: Return on equity (ROE) is measured as lucre divided by shareholders' equity. once a corporation…
Q: Identify the corect statement: O H EBIT is expected to be below the indifference point, the firm…
A: EBIT - EPS indifferent point is the EBIT level at which EPS is same
Q: What is WACC? Why do firms compute it? What happens to WACC when the debt level of a firm changes?
A: WACC is the weighted average cost of capital. It is the average cost of raising capital both equity…
Q: The risk-return trade-off in managing a firm's working capital involves a trade-off between the…
A: Working capital = Current assets - current liabilities
Q: When a firm has businesses with different risk profiles, different investments can have different…
A: Business used to have various risk profiles on which the risk profile are majorly gets evaluated…
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- Identify the correct statement: O II EBIT Is expected to be below the indifference point, the firm will prefer the capital structure with more debt O The EBIT-EPS indifference point is the point at which EBIT is the same under two different capital structures O The EBIT-EPS indifference point is always higher for an existing firm compared to a new firm O If EBIT is expected to be above the indifference point the firm will prefer the capital structure with more debtWhich of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mixWhich is true when evaluating two (2) companies operating in the same industry? Since they may have different betas, they should have the different risk-free rates. They should have the same beta. Regardless of capital structure, they should have the same risk-free rate in computing for cost of common equity. They should have the same cost of capital.
- Is there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not? You need to support your answers with examples.Is the debt level that maximizes a firm's expected EPS the same as the one that maximizes its stock price? Explain. Explain how a firm might shift its capital structure so as to change its weighted average cost of capital (WACC). What would be the impact on the value of the firm?Which is easier to calculate directly, the expected rate of return on the assets of a firm or the expected rate of return on the firm’s debt and equity?
- Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.What is WACC? Why do firms compute it? What happens to WACC when the debt level of a firm changes?Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?
- If the financial market is frictionless, the cost of equity is higher than the cost of debt in all firms. Therefore, in this circumstance, firms must finance their projects by issuing debt rather than equity. Is it right?Suppose a firm invest in proects that are much riskier than its average investments. Do you think the firm's weighted average cost of capital will be affected? Explain.Which is true when evaluating two (2) companies operating in the same industry? Since they may have different betas, they should have the different risk-free rates. They should have the same beta. Regardless of capital structure, they should have the same risk-free rate in computing for cost of common equity. They should have the same cost of capita
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