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Discuss MM proposition II under the situation when there are corporate taxes and risk-free debt.
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- You are the controller of a firm whose CEO believes that debt should always be used to finance long-term expenditures because interest is tax deductible. List and describe other benefits to debt financing. Also, list and describe risks to using debt.These are corporate bonds that have a higher rate of return with a higher level of risk? Group of answer choices Revenue bonds Junk bonds GOBs Tax increment bondsExplain the interest rate sensitivity of government debt as a function of: i) its maturity and ii) the level of coupon it pays.
- Which of the following is CORRECT? Select one: a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation. b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM. d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. e. All of the above are correct. Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must…1. How would you define corporatebonds? Explain in your own wordswhat Bonds issued at Par, at aDiscount, and at a Premium are.2. How would you explain thedifference between bank loans andissuing corporate bonds? In youropinion, which of the fundingmethods is more attractive to acompany?How does the WACC DCF methodology mechanically incorporate interest tax shields (select the best answer)? Group of answer choices By estimating free cash flows that incorporate the tax benefits of debt. By adding the tax benefits of interest payments to the value of the firm. By adding the PV of the interest tax shields to the value of the firm. By estimating a discount rate that incorporates the tax benefits of debt.
- Critically discuss the significance of including the factor of inflation in corporate finance calculationsWhich of the following is not a capital market instrument? a. Corporate stock b. Mortgages c. Corporate bonds d. Repurchase agreementExplain how continuous reliance on debt financing will affect the return to the equity holders or shareholders of your company following the arguments of M&M proposition 2
- 1. Why do short-term debt securities issued by private companies generally offer higher yields than treasury bills issued by central governments?Distinguish between a primary and secondary capital market and discuss the role played these markets in corporate financeIndicate whether the following statements is true or false. Provide the relevant explanations. In the presence of corporate taxes, a company would prefer to raise debt only when the benefits of the tax shield fully offset the cost of debt. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.)