Questions from Corporate Finance

Q: The following equation is reproduced from the study by Fama and French

The following equation is reproduced from the study by Fama and French of returns between 1963 and 1990. where MV is the market value of equity in hundreds of millions of dollar and BV is the book val...

Q: You are the manager of a grocery store, and you are

You are the manager of a grocery store, and you are considering offering baby-sitting services to your customers. You estimate that the licensing and set up costs will amount to $150,000 initially and...

Q: Assume that SmallTech has net income of $1 million and that

Assume that SmallTech has net income of $1 million and that the earnings will increase in proportion with the additional capital raised. a. Estimate the earning per share that SmallTech will have afte...

Q: In 1995, an analysis of the capital structure of Reebok provided

In 1995, an analysis of the capital structure of Reebok provided the following results on the cost of capital and firm value. This analysis was based on the 1995 EBIT of $420 million and a tax rate of...

Q: A commodity bond links interest and principal payments to the price of

A commodity bond links interest and principal payments to the price of a commodity. Differentiate a commodity bond from a straight bond and then from equity. How would you factor these differences int...

Q: Z-Tec, a firm providing Internet services, reported net

Z-Tec, a firm providing Internet services, reported net income of $10 million in the most recent year, while making $25 million in capital expenditures (depreciation was $5 million). The firm had no w...

Q: You are trying to estimate a price per share on an IPO

You are trying to estimate a price per share on an IPO of a company involved in environmental waste disposal. The company has a book value per share of $20 and earned $3.50 per share in the most recen...

Q: Time Warner, the entertainment conglomerate, has a beta of 1

Time Warner, the entertainment conglomerate, has a beta of 1.61. Part of the reason for the high beta is the debt left over from the leveraged buyout of Time by Warner in 1989, which amounted to $10 b...

Q: You are trying to estimate the NPV of a three-year

You are trying to estimate the NPV of a three-year project, where the discount rate is expected to change over time. a. Estimate the NPV of this project. Would you take this project? b. Estimate the I...

Q: You run a financial service firm where you replace your employee’s computers

You run a financial service firm where you replace your employee’s computers every three years. You have 5,000 employees, and each computer costs $2,500 currently—the old computers can be sold for $50...