1. MM Propositions: How would you answer at the end of the following debate?
Q: Isnt it true that the riskiness of a firms equity will rise if the firm increases its use of debt
A: Yes, thats the essence of MM Proposition II.
Q: And isnt it tru
Growth Rate: In the context of the dividend growth model, is it true that the growth rate in dividends
and the growth rate in the price of the stock are identical?
Of course yes. If the dividend grows at a steady rate, so does the stock price. In other wo
1.Comparing Investment Criteria:
A. Payback period: Calculate the time that a project needs to recover its
investment. Reject a project if the time is more than a particular cutoff date.
Otherwise, accept it.
Shortcoming: 1. Ignore the time value of cash
Book Values vs. Market Values:
Under standard accounting rules, a companys asset should equal to its total liabilities plus its
total owners equity. It is possible that a companys liabilities to exceed its assets. In this
situation, the company does not h
1. APR and EAR: Should lending laws be changed to require lenders to
report EARs instead of APRs? Why or why not?
2. Time Value: On subsidized Stafford loans, a common source of financial
aid for college students, interest does not begin to accrue until r
Module 1 Discussion Questions:
Agency Problems: Who owns a corporation? Describe the process
whereby the owners control the firms management. What is the main reason
that an agency relationship exists in the corporate form of organization? In