Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 2, Problem 36P

You are analyzing the leverage of two firms and you note the following (all values in millions of dollars):

Chapter 2, Problem 36P, You are analyzing the leverage of two firms and you note the following (all values in millions of

  1. a. What is the market debt-to-equity ratio of each firm?
  2. b. What is the book debt-to-equity ratio of each firm?
  3. c. What is the EBIT/interest coverage ratio of each firm?
  4. d. Which firm may have more difficulty meeting its debt obligations? Explain.
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The slope parameter ß1 measures the change in annual salary, in thousands of dollars, when return on equity increases by one percentage point. Because a higher roe is good for the company, we think ß1 > 0.The data set CEOSAL1 contains information on 209 CEOs for the year 1990; these data were obtained from Business Week (5/6/91). In this sample, the average annual salary is $1,281,120, with the smallest and largest being $223,000 and $14,822,000, respectively. The average return on equity for the years 1988, 1989, and 1990 is 17.18%, with the smallest and largest values being 0.5% and 56.3%, respectively.Using the data in CEOSAL1, the OLS regression line relating salary to roe is :

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Corporate Finance

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