1) Which kind of financing, debt or equity, is risk greater? Describe why? Is return on equity fixed or variable? Explain in detail. Define and describe the right descending order of priority of rights in case of corporate liquidation.
2) Describe financial ratios by stating their: (i) definition, (ii) purpose, (iii) broad types, (iv) examples of some normally used ratios, and how to utilize ratio analysis if ratios don’t essentially follow company or industry norm. Provide a suitable example of negative ratio, undefined ratio or a zero ratio, and what could make that happen.
3) State and describe market efficiency and difference between weak form efficient, semi-strong form efficient and strong form. Are most markets considered proficient? Most markets are considered semi-strong form efficient, which means you usually can’t make money trading on _______________ information. Though trading on insider information can be profitable. Fill in spaces and describe your position according to research literature.
4) Explain "interest tax shield" and describe how it works with debt financing. What ratio is utilized to compute the "interest tax shield?" Describe the ratio. When will the "interest tax shield" not help the company?