a3 - ACTSC 372 – Assignment 3 – due on March 12, 2007...

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Unformatted text preview: ACTSC 372 – Assignment 3 – due on March 12, 2007 1. [3 points] (i) You own 100 shares of a firm whose total number of shares is 1000. N directors must be elected. If cumulative voting is used, how large must N be in order for you to make sure you will be able to elect at least one director? (ii) A firm has 1 million of outstanding shares and must elect 5 directors. If straight voting is used, how many shares do you need to own in order to make sure you will be able to elect at least one director? Would your answer change if there were 10 directors to elect? 2. [3 points] ABC Corporation and XYZ Corporation are identical except for their capital structure. ABC is an all-equity firm with 10,000 outstanding shares currently worth $36 per share. XYZ Corpo- ration has a debt with a market value of $90,000. The cost of this debt is 8% per year. Both ABC and XYZ are expected to have annual earnings before interest and taxes of $40,000 in perpetuity. Neither firm pays taxes. In the following, you can assume that every investor can borrow at the same ratefirm pays taxes....
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This note was uploaded on 09/18/2011 for the course ACTSC 372 taught by Professor Maryhardy during the Winter '09 term at Waterloo.

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