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What does the Trade-off Theory say about the
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- Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?Given asymmetric information between investors and managers, )How would investors interpret firm’s decision to finance through debt? )How would investors interpret firm’s decision to finance through equity? )How would investors interpret firm’s decision to buy back its equity? )Given the signaling theory above, what is the implication on firm’s financing preference (hint: pecking order hypothesis)?How does the financial market facilitate corporate finance and investment management needed?
- What are the differences between raising capital from a financial institution and raisingfinances directly from the market?• Having researched derivatives for investment portfolios, is there a need for them as hedging vehicles in corporate finance? Going forward, how might this apply as a future corporate investment manager?What is the likely reaction of Jasper's corporate management toward the investment? Why?
- What is the important question of corporate finance when a finance manager advises the company’s management to accept or reject a long-term investment project?How does additional debt in a firm influence its WACC? its free cash flow (FCF)? the agency costs of the firm?Are the companies financed primarily with debt or equity? Why?
- If a company wanted to maximize EPS (Earning per Share), which form of financing might they likely consider, debt or equity? ExplainWhat’s the risk of competition on financial markets and institutions profitability?What benefits is available to investors in a dividend reinvestment plan? How might the firm benefit?