EBK PRINCIPLES OF CORPORATE FINANCE
12th Edition
ISBN: 9781259358487
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Textbook Question
Chapter 17, Problem 5PS
MM’s propositions True or false?
- a. MM’s propositions assume perfect financial markets, with no distorting taxes or other imperfections.
- b. MM’s proposition 1 says that corporate borrowing increases earnings per share but reduces the price–earnings ratio.
- c. MM’s proposition 2 says that the
cost of equity increases with borrowing and that the increase is proportional to D/V, the ratio of debt to firm value. - d. MM’s proposition 2 assumes that increased borrowing does not affect the interest rate on the firm’s debt.
- e. Borrowing does not increase financial risk and the cost of equity if there is no risk of bankruptcy.
- f. Borrowing always increases firm value if there is a clientele of investors with a reason to prefer debt.
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Chapter 17 Solutions
EBK PRINCIPLES OF CORPORATE FINANCE
Ch. 17 - Homemade leverage Ms. Kraft owns 50,000 shares of...Ch. 17 - Homemade leverage Companies A and B differ only in...Ch. 17 - Corporate leverage Suppose that Macbeth Spot...Ch. 17 - Corporate leverage Reliable Gearing currently is...Ch. 17 - MMs propositions True or false? a. MMs...Ch. 17 - MMs propositions What is wrong with the following...Ch. 17 - Prob. 7PSCh. 17 - MM proposition 1 Executive Cheese has issued debt...Ch. 17 - Prob. 9PSCh. 17 - Prob. 10PS
Ch. 17 - MM proposition 2 Spam Corp. is financed entirely...Ch. 17 - MM proposition 2. Increasing financial leverage...Ch. 17 - Prob. 13PSCh. 17 - MM proposition 2 Look back to Section 17-1....Ch. 17 - MM proposition 2 Hubbards Pet Foods is financed...Ch. 17 - MM proposition 2 Imagine a firm that is expected...Ch. 17 - MM proposition 2 Archimedes Levers is financed by...Ch. 17 - MM proposition 2 Look back to Problem 17. Suppose...Ch. 17 - Prob. 19PSCh. 17 - After-tax WACC Gaucho Services starts life with...Ch. 17 - After-tax WACC Omega Corporation has 10 million...Ch. 17 - After-tax WACC Gamma Airlines has an asset beta of...Ch. 17 - Prob. 23PSCh. 17 - Investor choice People often convey the idea...Ch. 17 - Investor choice Suppose that new security designs...
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