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What is the underlying cause of ranking conflicts between NPV and IRR?
Underwriters of a new issue of preferred stock would charge $3 per share in flotation costs. The firm's tax rate is 40%. Compute the cost of new preferred stock for DEF?
What is the reinvestment rate assumption, and how does it affect the NPV versus IRR conflict?
When forecasting operating expenses, explain the difference between a fixed cost and a variable cost.
What is the yield-to-maturity of a 10-year, 10% semi-annual coupon bond if its current price is $1,135.90? Assuming a 35% tax rate, what is the after-tax cost of debt?
What reinvestment rate assumptions are built into the NPV, IRR, and MIRR methods? Give an explanation (other than ?obecause the text says so??) for your answer.
Currently, new Baa bonds are being issued with a coupon of 7%. Assuming the firm's income tax rate is 35%, what is the after-tax cost of debt capital for the firm?
What is the cost of the preferred capital of a firm whose currently outstanding preferred shares pay a dividend of $4.50 per share and the preferred shares are trading at $60.00 per share?
Why is it generally incorrect to consider interest charges when computing a project's net cash flows?
The stock market has a long-run expected return of 10 percent per year. If the risk-free rate is 4 percent, estimate Acme's cost of equity.
Why do analysts care about the current cost of long-term debt when estimating a firm's cost of capital?
XYZ has a Beta of 1.5. The risk-free rate is 5%, and the market expected return is 15%. Which of the following is most likely to happen?
Why do we use forecasted incremental after-tax free cash flows instead of forecasted accounting earnings in estimating the NPV of a project?
Analyze the approaches to capital structure decisions and determine which theory is the most applicable across the widest number of scenarios. Explain your rationale.
What is the fundamental difference between a sensitivity analysis and a scenario analysis?
The stock of North American Dandruff Company is currently selling at $80 per share. If the firm has a payout rate of 50 percent, what is the firms P/E ratio?
What is measured by the net present value (NPV) of a potential project? If the NPV of a project is $0, is it an acceptable project? Explain.
What is a progressive tax system? What is the difference between a firm's marginal and average tax rates?
What is meant by the term time value of money? Why is a present value always less than the future value to which it relates?
What do you think the Beta () of your portfolio would be if you owned half of all the stocks traded on the major exchanges?
What is the profitability index, and why is it helpful in the capital rationing process?
Suppose the December CBT Treasury bond futures contract has a quoted price of 103-18. If annual interest rates go up by 1.00 percentage point, what is the gain or loss on the futures contract?
What is the primary weakness of sensitivity analysis? What are its primary advantages?
What is the logic behind the IRR method? According to IRR, which projects should be accepted if they are independent? Mutually exclusive?
If the price level falls next year, remaining fixed thereafter, and the money supply is fixed what is likely to happen to interest rates over the next two years?