a. Brokeman Brothers, a large investment bank, is facing near-term cash outflows despite having successfully raised capital in the past via stock offerings and having retained significant earnings for over fifty years.
i. Can it tap the retained earnings on its balance sheet to pay for its obligations?
ii. How about additional paid-in capital?
b. The market value of DEF Company's liabilities (e.g. bonds) falls by $10 million.
i. Is the company better or worse off?
ii. Will its equity book value go up or down?
iii. If you owned the DEF Company, would you prefer the market value of its assets to rise $10 million or the market value of its liabilities to fall $10 million?