1) The Parnes Co. is financed completely with equity. Company is allowing for a loan of= $1.4 million. Loan will be repaid in 2 equal principal instalments over next 2 years, and will pay 8% interest annually. Company’s tax rate is= 35%. According to Modigliani and Miller Proposition with taxes, what result would loan have on firm value?
2) Explain free rider problem in market for corporate control. Write down suppositions that are crucial in arriving at conclusion that takeovers can’t succeed? Briefly explain the effects of Grossman and Hart’s “dilution factor.” How does the increase in dilution factor affect probability of successful tender offer?
3) Prove that time travel is not possible. Note that this is not a question in physics, so you don’t require explaining the “Twins Paradox” or any other theories by Albert Einstein. Think first on how to approach a question like that, and then describe with financial terms your formal proof.