4. What is the present value of the net tax-shield of debt if the current market value of the firm is $10 million, its v...

Get help with any kind of assignment - from a high school essay to a PhD dissertation

  1. Order Custom Essay, Course Work, Research and Term Papers

What is the present value of the net tax-shield of debt if the current market value

April 14, 2018

4. What is the present value of the net tax-shield of debt if the current market value of the firm is $10 million, its value if unlevered would be $8 million, and the present value of bankruptcy and agency costs is $500,000?

a. $1,500,000

b. $2,000,000

c. $2,500,000

d. None of the above are correct.

5. What is the market value of common equity under the NOI approach? The firm has an expected net operating income of $5,000 with $4,000 of debt (market value). Assume that the overall capitalization rate is 20%.

a. $5,000

b. $20,000

c. $21,000

d. $25,000

6. Which of the following statements regarding the net operating income approach is incorrect?

a. The overall capitalization rate, kO, is constant.

b. The cost of debt funds, ki, is constant.

c. The required return on equity, ke, is constant.

d. The total value of the firm is unaffected by changes in financial leverage.

7. Which of the following statements regarding the total value principle is incorrect?

a. The total value principle allows for corporate borrowing and excludes personal borrowings via arbitrage.

b. The total value principle must hold or else arbitrage will take place and then its presence will cause the value to remain constant regardless of the capital structure.

c. The total value does not change because the underlying profit and risk of the firm are with its operations, which do not change when the financing changes.

d. Modigliani and Miller, in their original position, advocate that the total value of the firm is identical regardless of the financing mix.

8. Two identical firms exist except that Firm A uses no debt and Firm B uses some debt. The total value of Firm A is less than the total value of Firm B, but you own 2% of Firm B. Based on the arguments by Modigliani and Miller regarding the total value principle, what should you do?

a. Buy 2% of Firm A with funds from "shorting" your shares in Firm B. Submit a press release that the two firms should be worth identical values. This will cause Firm A to rise in value and leave you extra funds for investment.

b. You should borrow enough funds to equal the difference in firm value, purchase shares of Firm A with these funds, and sell your shares in Firm B. This will leave extra funds for an investment of your choice.

c. Sell your shares, personally borrow 2% of the quantity of firm debt, and purchase 2% of Firm A. This will leave extra funds for an investment of your choice.

d. Sell enough of your shares (Firm B) to purchase 2% of Firm A. This will leave extra funds for an investment of your choice.










OUR SERVICE CHARTER






  • 24/7 Customer Support

    Our team of writers prides in high-level competence. The writers have the required expertise that enables them to deliver quality papers that match with the requirements of the grading rubric. In the absence of the rubric, we ensure that the writers follow the clients’ instruction brief to the letter. We can confidently assure our clients to expect nothing short of a pass from the papers that we deliver. Importantly, we have qualified writers who handle different areas of study. This diversification enables us to allot clients’ orders to the writer who is well seasoned in the subject area of study. It also enables the team to become more professional due to specialization. Our clients should put their trust in our service delivery and expect to successfully attain high grades at all times. The fact that we offer free revision reflects our dedication in delivering high quality papers that match with our clients’ expectations.

  • Better Grades Guarantee

    Our team of writers prides in high-level competence. The writers have the required expertise that enables them to deliver quality papers that match with the requirements of the grading rubric. In the absence of the rubric, we ensure that the writers follow the clients’ instruction brief to the letter. We can confidently assure our clients to expect nothing short of a pass from the papers that we deliver. Importantly, we have qualified writers who handle different areas of study. This diversification enables us to allot clients’ orders to the writer who is well seasoned in the subject area of study. It also enables the team to become more professional due to specialization. Our clients should put their trust in our service delivery and expect to successfully attain high grades at all times. The fact that we offer free revision reflects our dedication in delivering high quality papers that match with our clients’ expectations.

  • Excellent Quality Work

    Grammar is one of the elements that we take seriously in our service delivery. Beside the use of spell checkers, we progressively take our writers through the essentials of a quality paper that features information clarity. Importantly, we encourage our writers to avoid coming up with a paper that deviates from the elements that appear on the client’s instruction brief. It means that the papers that we deliver denote well researched information that is rich in details. Additionally, the papers usually contain exhaustive details on any instruction that a client submitted. It is the tireless application of our writers’ efforts that makes us stand out when it comes to the delivery of excellent quality work. Notably, our writers use quality resources when digging up information that a paper requires. They are usually aware of the sources that contain rich information. Our past clients have proved that we give nothing short of quality work through giving us a positive feedback.

  • Professional Academic Writers

    An academic degree is one of the qualifications that our writers hold. This is only a minimum requirement that we ask from our writers, but the team also has writers who possess higher educational credentials. It means that the team comprises of competent writers who have gone through institutions of higher learning and passed their exams. Subsequently, the writers have a good grasp of what our clients require. It is notable that our writers not only want to apply their acquired knowledge, but they are also willing to help our clients to outperform them. This is a clear indication of a team that is willing to walk an extra mile. We uphold professionalism in our operations, and our clients should look forward to receive services from a team of experts. It is the spirit of value addition that makes us to scale any heights in order to deliver and outperform our clients’ expectations.




Related Questions