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Topic 1: When the WACC formula is applied to cost of capital the outcome seems toimply that debt is “cheaper” than equity; this implies that a firm with more debt could use a lower discount rate. Does this make sense? Explain your answer. Topic 2: Corporations often consume natural resources in our society. Overuse or mining of such natural resources can lead to problems in the natural world. In addition, our society has been using technology to improve a corporation’s position, either financially or through improved resource allocation. In this assignment you are to research a real world issue and create a solution to the problem. You should: 1. Identify a problem in our natural world that is the result of overuse or by over mining of one or more natural resources to advance a corporation. 2. Prepare a summary that includes the negative effects on the natural world, how technology was used, and the benefit to the corporation. 3. Add an additional summary to propose a solution using technology to solve the problem. Explain how the proposed solution continues to benefit the corporation financially. Your summary should also show how this solution could create a significant improvement in the natural world. The goal of this assignment is to use your critical thinking skills to identify a problem and propose a solution that leaves the corporation and the environment in the best shape possible with the help of technology. This discussion will require that you include resources using APA format. According to M&M Proposition 2, which of the following conditions would maximize the value of a firm? If the cost of debt remains unchanged, the value of a firm would be maximized at a very low debt ratio. If the cost of debt changes, the value of a firm would be maximized at a high debt ratio. If the cost of debt changes, the value of a firm would be maximized with a very low debt ratio. If the cost of debt remains unchanged, the value of a firm would be maximized at a high debt ratio. The fraction of a firm’s total financing that is represented by debt is a measure of its financial security. efficiency. operating leverage. financial leverage. Financial policy matters because taxes matter. transactions costs and information costs exist. capital structure choices affect a firm’s real investment strategy. All of these. A firm plans to issue $700,000 worth of debt at a YTM of 7.5%. The debt is trading at par. The firm’s marginal corporate tax rate is 30%. What is the present value of the tax savings in perpetuity? $210,000 $490,000 $280,000 $ 15,750 In a world with taxes, the value of a leveraged firm equals the value of an unleveraged firm plus the present value of its debt. the present value of the tax shield from the interest on its debt. the present value of its future cash flows. none of these. Besides providing an interest tax shield, the inclusion of debt in a firm’s capital structure provides it with all of the following advantages, except less likelihood of managers wasting shareholders’ money due to better oversight by debt-holders. lower agency costs. lower transactions costs. better focus on the maximization of the firm’s cash flows. Under which of the following forms of business organization are the owners faced with double taxation? Limited partnership. Sole proprietorship. Limited liability Corporation (LLC.) C Corporation. Which of the following factors does not directly affect the value of a business? All of these directly affect the value of a business. The magnitude of the expected cash flows that the business is likely to produce. The timing of the expected cash flows that the business is likely to produce. The riskiness of the expected cash flows that the business is likely to produce. Which of the following factors does not directly affect the value of a business? All of these directly affect the value of a business. The magnitude of the expected cash flows that the business is likely to produce. The timing of the expected cash flows that the business is likely to produce. The riskiness of the expected cash flows that the business is likely to produce. Valuations differ between young and mature companies because of all of the following except: Young companies have less certain futures. Many young companies are not yet profitable. Young companies must invest a considerable amount and that makes it hard to use a cost approach. All of these are reasons valuations differ between young and mature companies.

Topic 1:

 

 

 

When the WACC formula is applied to cost of capital the outcome seems toimply that debt is “cheaper” than equity; this implies that a firm with more debt could use a lower discount rate. Does this make sense? Explain your answer.

 

 

 

Topic 2:

 

 

 

Corporations often consume natural resources in our society. Overuse or mining of such natural resources can lead to problems in the natural world. In addition, our society has been using technology to improve a corporation’s position, either financially or through improved resource allocation. In this assignment you are to research a real world issue and create a solution to the problem. You should:

 

 

 

1.     Identify a problem in our natural world that is the result of overuse or by over mining of one or more natural resources to advance a corporation.

 

2.     Prepare a summary that includes the negative effects on the natural world, how technology was used, and the benefit to the corporation.

 

3.     Add an additional summary to propose a solution using technology to solve the problem. Explain how the proposed solution continues to benefit the corporation financially. Your summary should also show how this solution could create a significant improvement in the natural world.

 

 

 

The goal of this assignment is to use your critical thinking skills to identify a problem and propose a solution that leaves the corporation and the environment in the best shape possible with the help of technology. This discussion will require that you include resources using APA format.

 

 

 

 

 

 

 

According to M&M Proposition 2, which of the following conditions would maximize the value of a firm?

 

 

 

If the cost of debt remains unchanged, the value of a firm would be maximized at a very low debt ratio.

 

 

 

 

 

 

If the cost of debt changes, the value of a firm would be maximized at a high debt ratio.

 

 

 

 

 

 

If the cost of debt changes, the value of a firm would be maximized with a very low debt ratio.

 

 

 

 

 

 

If the cost of debt remains unchanged, the value of a firm would be maximized at a high debt ratio.

 

 

 

The fraction of a firm’s total financing that is represented by debt is a measure of its

 

 

 

financial security.

 

 

 

 

 

 

efficiency.

 

 

 

 

 

 

operating leverage.

 

 

 

 

 

 

financial leverage.

 

 

 

Financial policy matters because

 

 

 

taxes matter.

 

 

 

 

 

 

transactions costs and information costs exist.

 

 

 

 

 

 

capital structure choices affect a firm’s real investment strategy.

 

 

 

 

 

 

All of these.

 

 

 

 

 

 

 

A firm plans to issue $700,000 worth of debt at a YTM of 7.5%. The debt is trading at par. The firm’s marginal corporate tax rate is 30%. What is the present value of the tax savings in perpetuity?

 

 

 

$210,000

 

 

 

 

 

 

$490,000

 

 

 

 

 

 

$280,000

 

 

 

 

 

 

$ 15,750
 

In a world with taxes, the value of a leveraged firm equals the value of an unleveraged firm plus

the present value of its debt.

 

the present value of the tax shield from the interest on its debt.

 

the present value of its future cash flows.

 

none of these.

 

Besides providing an interest tax shield, the inclusion of debt in a firm’s capital structure provides it with all of the following advantages, except

less likelihood of managers wasting shareholders’ money due to better oversight by debt-holders.

 

lower agency costs.

 

lower transactions costs.

 

better focus on the maximization of the firm’s cash flows.

 

Under which of the following forms of business organization are the owners faced with double taxation?

Limited partnership.

 

Sole proprietorship.

 

Limited liability Corporation (LLC.)

 

C Corporation.

Which of the following factors does not directly affect the value of a business?

All of these directly affect the value of a business.

 

The magnitude of the expected cash flows that the business is likely to produce.

 

The timing of the expected cash flows that the business is likely to produce.

 

The riskiness of the expected cash flows that the business is likely to produce.

Which of the following factors does not directly affect the value of a business?

All of these directly affect the value of a business.

 

The magnitude of the expected cash flows that the business is likely to produce.

 

The timing of the expected cash flows that the business is likely to produce.

 

The riskiness of the expected cash flows that the business is likely to produce.

Valuations differ between young and mature companies because of all of the following except:

Young companies have less certain futures.

 

Many young companies are not yet profitable.

 

Young companies must invest a considerable amount and that makes it hard to use a cost approach.

 

All of these are reasons valuations differ between young and mature companies.

 

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