The principle of gearing 2. Why debt is cheaper than equity 3. What the effect will be on the risk if more debt than equity is used as a source of finance
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Explain the following:
1. The principle of gearing
2. Why debt is cheaper than equity
3. What the effect will be on the risk if more debt than equity is used as a source of finance
Step by step
Solved in 3 steps
- 6. Suppose the modeling allows S → 0, (a) What is the value of a Call? (b) What is the value of a Put? (c) Explain both answers in terms of finance.7. Suppose the modeling is that t → T. (a) What is the value of a Call? (b) What is the value of a Put? (c) Explain both answers in terms of finance.Question: What does ROI stand for in finance? a) Return on Investment b) Risk of Inflation c) Revenue over Income d) Rate of Interest
- Question: What does ROI stand for in finance? a) Return on Investmentb) Risk of Inflationc) Revenue over Incomed) Rate of Interest3. Suppose the market is wild; it is modeled by o → (a) What is the value of a Call? (b) What is the value of a Put? (c) Explain both answers in terms of finance.Question #5. When calculating the weighted average cost of capital (WACC), should we use marketvalues or balance sheet values as the weights of debt and equity? Explain your response