Problem Set 2 Solutins - NYU Stern School of Business...

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NYU Stern School of Business Corporate Finance B40.2302.11, .12 Fall 2001 Problem Set #2 Due in class, November 7 th (.11 section) or 8 th (.12 section). Hard copy is strongly preferred, but if you can’t attend class, you can email solution by 6pm November 7 th to Keith Siilats [[email protected]]. Can work in teams of up to three students. Be sure to list all team members’ names. The questions are equal-weighted unless otherwise indicated. 1) In the U.S., what is the most common source of funds for investment? Retained earnings (“internal finance”/”internal cash”) is the most common source . 2) In the U.S., what is the most commonly-used source of external finance? Debt is the most common. Equity is the least common. 3) A firm’s market-value balance sheet shows $100 M of debt finance and $20 M equity finance. What is the debt-to-equity ratio? What is the debt-to-value ratio? D/E = 100/20 = 5. D/V = 100/(100+20) = 0.83. 4) A stock certificate has a value stated on it. (a) This amount is called the _______. (b) It is (very meaningful / not very meaningful ) to investors. (a) Par value. (b) Not very meaningful. 5) Shares of stock that have been repurchased by the corporation are called ________ shares. Treasury. 6) The equity accounts of DotCom Inc. are as follows:
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