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Why does the use of debt financing leverage up (increase) the return to stockholders? What is the impact of debt financing on a business’s risk and return?
What is the single most important conclusion of the MM model with corporate taxes? What are the similarities between operating leverage and financial leverage?
What is the underlying cause of the “gain from leverage” in the MM model with corporate taxes?
In your view, which of the assumptions used in the models is most likely to cause the models to be invalid?
Briefly, explain the asymmetric information model of capital structure. What does the model suggest about capital structure decisions?
Do the capital structure models provide managers with specific quantifiable guidance regarding optimal capital structures?
What are some of the factors that managers must consider when setting a business’s optimal capital structure?
Do the general prescriptions for capital structure decisions apply to small businesses? Explain your answer.
Why are capital budgeting decisions so crucial to the success of a business?
Is it necessary to include depreciation expense in a cash flow analysis by a not-for-profit provider? Explain your answer.
Why is breakeven information valuable to decision makers? Briefly, describe net present value (NPV), internal rate of return (IRR), and modified IRR (MIRR).
Is it always necessary to adjust project cash flows to account for unequal lives?
Should projects be viewed as having one fixed life, or should they be considered as having alternative lives?
Explain the meaning of the term risk/return trade-off. In what markets does this trade-off hold?
What is the difference between an operating lease and a financial lease?How do per procedure payment terms differ from conventional terms?
What is the difference between a tax-oriented lease and a non-tax-oriented lease? What are some provisions that would make a lease non-tax-oriented?
What are some economic factors that motivate leasing; that is, what asymmetries might exist that make leasing beneficial to both lessors and lessees?
What financing sources are typically included in a firm’s cost of capital estimate? What is the basic concept of the corporate cost of capital?
Does the effective cost of debt differ materially between businesses that are similar in all respects except ownership?
Describe the CAPM approach to estimating a business’s cost of equity. What is the best proxy for the risk-free rate in the CAPM? Why?
What are three common methods for estimating the future dividend growth rate for use in the DCF model?
Is there a difference between the risk premium used in the CAPM and the one used in the debt cost plus risk premium model?
What is the primary difference between the corporate costs of capital for investor-owned and not-for-profit firms?
What are the implications of the EMH for investors and managers? Briefly, what is the Efficient Markets Hypothesis (EMH)?
What are the key features of constant growth regarding dividend yield and capital gains yield?