FI515 homework 1
Subject: Business    / Finance
Question

Mini Case

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a.

Why is corporate finance important to all managers?

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b.

Describe the organizational forms a company might have as it evolves from a start-up toa major corporation. List the advantages and disadvantages of each form.

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c.

How do corporations go public and continue to grow?

What are agency problems?

What is corporate governance?

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d.

What should be the primary objective of managers?

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e.

What three aspects of cash flows affect the value of any investment?

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f.

What are free cash flows?

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g.

What is the weighted average cost of capital?

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h.

How do free cash flows and the weighted average cost of capital interact to determine a firm’s value?

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i.

Who are the providers (savers) and users (borrowers) of capital?

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j.

What do we call the price that a borrower must pay for debt capital? Interest Rate

.5in;=”” 0px=””>What is the priceof equity capital?

.5in;=”” 0px=””>What are the four most fundamental factors that affect the cost ofmoney, or the general level of interest rates, in the economy?

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k.

What are some economic conditions (including international aspects) that affect the cost of money?

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l.

What are financial securities? Describe some financial instruments.

.

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m.

List some financial institutions.

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n.

What are some different types of markets?

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o.

How are secondary markets organized?

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·

2-6: Statement of Retained Earnings

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o

In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were$780 million. How much in dividends was paid to shareholders during the year?

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2-7 Corporate Tax Liability

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o

The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes.

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§

What are the firm’s income tax liability and its after-tax income?

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What are the company’s marginal and average tax rates on taxable income?

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2-9 Corporate After-Tax Yield (muni, corp, PS)

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o

The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporation tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities.

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