Which of the following is not an assumption made by Modigliani and Miller in relation to the independence hypothesis concerning capital structure? a. No taxes b. There are no bankruptcy costs c. Equal borrowing rates for individual and businesses d. There is imperfect information e. All of the above are assumptions made by Modigliani and Miller under the independence hypothesis
Q: Calculate the break even number of units with a target profit of $120,000 if the fixed expenses are…
A: Break even analysis is used for identifying the number of units that the firm needs to produce in…
Q: A firm has a debt-to-equity ratio of 0.50. Its cost of debt is 12%. Its overall cost of capital is…
A: To calculate the cost of equity we will use WACC formula as follows: WACC = [Ke*E]+[Kd*D] Where…
Q: In computing the B/C ratio, is the annual revenue counted as benefits? Please compute the B/C ratio…
A: The B/C ratio is known as the Benefit-Cost ratio. It shows the relationship between the cost and…
Q: Determine the IRR
A: IRR is the discount rate where NPV of the cashflows calculated using IRR will be Zeera, which means…
Q: contract of sale
A: The answer is option A. Valid. The contract rendered here is a valid contract.
Q: Advanced Products is considering the purchase of a computer-aided manufacturing system that requires…
A: Solution:- Present value means value in today’s terms.
Q: A. What is the value of a 5%, $1,000 face value bond that matures is 11 years if investors require a…
A: As per Bartleby Honor Code, when multiple questions are asked, the expert is required only to solve…
Q: 15. Sarah is taking out a $15,300 four-year new-car loan with an APR of 5.15%. What is the finance…
A: Finance Charge: It is an expense charged for the utilization of credit or the expansion of existing…
Q: t 2 of 3-B Suppose the following model describes changes in Company ABC's sales: AABCt = 0.078 -…
A: The sales growths are changing and change in sales depends on the change in sales of previous change…
Q: Advanced Products is considering the purchase of a computer-aided manufacturing system that requires…
A: Solution:- Accounting Rate of Return means the percentage of increase in net income per year to the…
Q: The Nunal Corporation finds that it is necessary to determine its marginal cost of capital. Nunal’s…
A: The Weighted Average Cost of Capital (WACC) refers to the financial ratio that calculates the…
Q: Archer Arrow Company examined its cash management policy and found that it takes an average of 5…
A: Given Number of customer per day P80,000 Number of days checks received from customers is 4 days
Q: 1. Suppose for an investment of $500, you will receive a monthly payment of $2 for perpetuity…
A: As per the information provided: Investment amount = $500 Monthly payment = $2 for perpetuity…
Q: he closing cash (spot) price for Yellow #2 corn was $7.28/bushel on March 31, 2022. If I am a…
A: Profit can be made in the speculation but there may be some time loss also. So speculation both are…
Q: What was the closing price for McKesson on July 7, 2016?
A: The closing price for McKesson on July 7, 2016, is 191.20
Q: Profitability Ratio for pepsi CO
A: The profitability ratio shows the efficiency of a company in making a profit. The profitability…
Q: ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly…
A: Purchase Price P 40,00,000.00 Cots Incurred Buying P…
Q: If the annual interest rate is 8%, what is the daily interest rate that would be used as the "r" in…
A: Daily interest rate is often used in finance to determine the amount of interest that one will owe…
Q: (a) Discuss the two opposite views towards regulating financial markets/institutions. (b) Discuss…
A: Commercial banks, investment banks, insurance companies, and brokerage firms are the most frequent…
Q: average life time value ot
A: The average lifetime value is to be calculated by multiplying the average order with the average…
Q: how to find net profit margin for pepsi company the year 2019, 2020, and 2021
A: The question is asked to find the net profit margin for pepsi company.Since there is no numerical…
Q: A recent college graduate hopes to have 200,000 saved in their retirement account 25 years from now…
A: Here, Future value (FV) = 200,000 Number of years = 25 years Contribution per month = 150 Interest…
Q: expected return of 20% and a beta of 1.4, and the risk-free rate is 8%, how much money will she…
A: Portfolio Return: It is computed by the sum of individual returns of the portfolio security that…
Q: Suppose you require a 10% return on your investments while purchasing a stock tha ently trading at…
A: For a stock investment return on investment is the quantum of net profit or benefit or gain that…
Q: VAN DER LINDE CORPORATION have been operating since 2011 and have not issued any new shares since…
A: Gross Profit ratio can be calculated as: = Gross Profit/ Net Sales * 100 and Cost of goods sold…
Q: Ms. Jones want to make 12% nominal interest compunded quarterly on a bond investment. She has an…
A: Concept. Bond price is present discounted value of future cash stream generated by bond. It refers…
Q: The company just paid a $1.48 annual dividend and announced the plans to pay $1.54 next year. The…
A: Constant and non-constant growth dividend model : The main distinction between a constant and…
Q: Determine the capitalized cost for an asphalt road that will require a construction cost of 10M, 50…
A: The following information has been provided in the question: Construction cost of asphalt road= 10M…
Q: Which of the following is not a way that a firm might seek to raise new capital? a. Initial Public…
A: The company needs capital for growth and expansion and there are many ways to raise the capital and…
Q: Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security. The…
A: Given, The value of each mortgage is 100,000 Number of Mortgages = 50 The value of 50 mortgage = 50…
Q: Quarterly interest = 10000*4%/4 = 100 Quarterly nominal interest rate = 4%/4 = 1% %3D n = 16*4 = 64…
A: Here, Face value of the bond = 10,000 Annual Interest rate = 4% quarterly Number of years = 16 years…
Q: You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity,…
A: Ratio analysis is the method of checking the company's operational efficiency, liquidity, and…
Q: . The average daily balance on Crandall's credit card is $4,637.23. His APR is 22%. What is his…
A: Annual percentage rate (APR) : It is rate of return calculated for 12 months return. It is given…
Q: JL Bank offers a business loan with an initial amount of 6,000,000 pesos at a rate of 3% compounded…
A: Loan Amortization: It is the most common way of scheduling out a fixed-rate credit into equivalent…
Q: 19. Odette has a base monthly salary of S1,500 and earns a 5% commission on all sales she makes at…
A: In this question, we need to calculate the total sales, which we need to derive from Odette's total…
Q: what is the difference between Labuan Offshore Financial Centre and Labuan International Business…
A: Labuan is a financial center that is located in Malaysia. Essentially it is an offshore financial…
Q: In 2,009, the average price of a certain industrial material was SR 15.29 per liter. Suppose the…
A: Solution:- Inflation means the increase in prices of a commodity over a period of time.
Q: The following information pertains to Havana Corporation's defined benefit pension plart 2021 2022…
A: We can calculate the service cost in the year 2021 by applying the required formula by taking the…
Q: king Inc. is expected to generate EBIT of $5 million annually in perpetuity (starting in one year).…
A: After doing repurchase using the debt the number of shares decreases but cost of capital decreases…
Q: If we have an inflation ratio (f) of 5.0% and a market interest (i) of 1.0%, how much is the…
A: A market interest rate is also called market nominal rate. This rate does not take account of…
Q: Determining whether an amount is of a capital or a revenue nature forms part of the subjective test.…
A: Capital is the amount invested in the particular asset, while revenue is the amount earned on the…
Q: Explain why NPV is the best criterion and how it overcomes problems inherent in the other methods.
A: Capital budgeting is a process that involves choosing projects by determining the value of a…
Q: Calculate the break even sales dollars if the fixed expenses are $7000 and the contribution ratio is…
A: Break even analysis is used for identifying the number of units that the firm needs to produce in…
Q: moderale curent asset inveatment policy, but it is now considering a change, perhaps to a restricted…
A: Answer- 1. Restricted policy where current assets are 20% of sales. Sales = $400,000 Current…
Q: School fees at a certain school are due at the beginning of the year. The fees are set at R12000 for…
A: The answer for this question can be calculated in the light of time value of money. Time value of…
Q: balloon-payment mortgage. Why might a financial institution prefer to offer this type of mortgage?
A: Step 1 A balloon payment is a one-time payment that is bigger than usual at the expiration of the…
Q: Suppose that the price of a Treasury bill with 85 days to maturity and a $25,000 face value is…
A: Bond equivalent yield can be calculated by using the below equation. Bond equivalent yield =(face…
Q: Explain the problems of adverse selection and moral hazard caused by asymmetric information. How can…
A: A financial intermediary is a company or people that acts as a go-between for various parties to…
Q: When choosing a mutual fund, one of the most important things to consider is your investment…
A: Income Objective: Nick is nearing retirement and is looking to purchase a mutual fund that will…
Q: Why are banks currently holding capital well above the minimum regulatory requirement?
A: Capital is the main and important ingredient of banks, without capital , we cannot run a bank,…
Which of the following is not an assumption made by Modigliani and Miller in relation to the
independence hypothesis concerning capital structure?
a. No taxes
b. There are no bankruptcy costs
c. Equal borrowing rates for individual and businesses
d. There is imperfect information
e. All of the above are assumptions made by Modigliani and Miller under the independence
hypothesis
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Under Modigliani and Miller's assumption of perfect capital markets, which of the following is NOT CORRECT? A) The proper WACC equation under perfect capital markets is the "pre-tax" WACC B) Taxes are irrelevant C) Reducing the debt ratio can cause the cost of debt and the cost of equity to decline, even as the WACC stays the same. D) The WACC does not change as the weights of debt and equity change E) Bankruptcy costs reduce the amount bondholders receive when bankruptcy occursWhich of the following contentions concerning the static trade off theory of capital structure are true? (i) The optimal capital structure depends upon both the value of the tax shield and on the costs of financial distress. (ii) Costs of financial distress decrease as the amount of debt in the capital structure increases. (iii) The value of the tax shield increases as the amount of debt in the capital structure decreases. (iv) The cost of financial distress does not depend upon the nature of the firm's assets. O Only (i) and (iv) are true. O Only (iv) is true. O Only (i) is true. None are true. O Only (ii) and (iii) are true.The primary financial market does not ensure the collection of saved income from holders of financial capital available on the national and international market. Select one:falseFalse
- Capital Asset Pricing Model is based on certain assumptions, which have been criticized after empirical testing of the model. Discuss the critique of the model in the context of those assumption. Also discuss the empirical findings of the CAPM. What sort of models have been presented to overcome the drawbacks of CAPM?Which of the following is false regarding book and market values? Select one: O a. Financial managers should rely on book values, and not market values, when analyzing the firm's tax liability. O b. Book value is an accounting summary of value and is inferior to market value as a source of current information regarding the true value of the firm. c. Market value always exceeds book value. O d. The market value of fixed assets is often difficult to determine.You want to argue against the taxation of interest income. a) Which simple interpretation of the Atkinson-Stiglitz result can you use for your argument? b) Which restrictions regarding its assumptions do you have to consider for this model in general? c) Which theorem could you use for your argumentation and how? d) Which objection of a growth theorist could you be confronted with?
- Which of the following is NOT an acceptable basis on which to measure an expense? A cash outflow. O A pro rata measure. O An estimation. O All of these options are acceptable. O An invoice price. Which of the following is a likely explanation as to why preparers would choose to deliberately understate the reported profit of a listed entity? O To reduce investors' expectations of future earnings. O To decrease the entity's weighted average cost of capital. To reduce the entity's tax liability. O To satisfy the qualitative characteristic of faithful representation. O All of these are likely explanations why preparers would deliberately understate the reported profit.Which of the following statements is false? (You may select more than one answer.)a. The total-cost and incremental-cost approaches to net present value analysis canoccasionally lead to conflicting results.b. The cost of capital is a screening mechanism for net present value analysis.c. The present value of a dollar increases as the time of receipt extends further intothe future.d. The higher the cost of capital, the lower the present value of a dollar received inthe future.s) Which of the following is NOT one of the benefits of leasing an asset from another company? ... O Protection against obsolescence O Complete financing O Lower interest rates than normal debt O Increased likelihood of sale
- Why can an M&A fail? O a. Economies of scale O b. shortcomings of the due diligence process, problems not discovered O c. Higher debt taking capability O d. Tax allowancesWhat are the main criticisms of the Capital Asset Pricing Model (CAPM)? What does the empirical evidence suggests regarding the validity of CAPM? Provide detailed explanations and studies referring to each criticism.The Nobel Prize-winning Modigliani & Miller Theory states that a firm’s capital structure does not matter. It is based on three key assumptions: No income taxes Equal borrowing cost- individuals can borrow at the same interest rate as corporations. Perfect markets: There are no bankruptcy, transaction, contracting, or agency costs. Are these assumptions reasonable? What are the implications if the assumptions do not hold?