Instructions

NAME:

To complete the homework assignments in the templates provided:

1. The question is provided for each problem. You may need to refer to your textbook for information in a few cases. 2. You will enter the required information into the shaded cells. 3. The cells are coded: a) T requires a text answer. Essay questions require references; use the textbook.

b) C requires a calculation, using Excel formulas or functions. You cannot perform the calculator and then type the answer in the cell. You will enter the calculation in the cell final answer will show in the cell. I will be able to review your calculation and correct, if

c) F requires a number only. In some problems, a Step 1 is added to help you solve t

d) Formula requires a written formula, not the numbers. For example, the rate of return nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).

4. Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by mi 7.

ions

efer to your textbook for additional

s; use the textbook.

You cannot perform the operation on a he calculation in the cell, and only the alculation and correct, if necessary.

dded to help you solve the problem.

ample, the rate of return = [(1 +

eek#", and submit by midnight ET, Day

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Problem 14-2

Assume that MMs theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate. a. How much of the firms value is accounted for by the debt-generated tax shield? b. How much better off will UFs a shareholder be if the firm borrows $20 more and uses it to repurchase stock?

Answer: Step 1: Tax rate - Tc a. Permanent Debt - D b. Additional Debt - D Step 2: Formula (in words) a. Tax shield b. Tax shield T T Benefit to Shareholders C C C Calculation F F F

TIP: difference between a and b

Principles of Corporate Finance, Concise, 2nd Edition

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Problem 14-24

Some companies debt-equity targets are expressed not as a debt ratio, but as a target debt rating on a firms outstanding bonds. What are the pros and cons of setting a target rating, rather than a target ratio? Answer: Pros T

Cons T

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Problem 15-6 A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). What is the projects APV in the following cases? a. If the firm invests, it has to raise $500,000 by a stock issue. Issue costs are 15% of net proceeds. b. If the firm invests, its debt capacity increases by $500,000. The present value of interest tax shields on this debt is $76,000. Answers:

Formula (in words) a. b. APV stock issue APV debt increases T T

Calculation C C

TIP: p.394 TIP: p.393

Principles of Corporate Finance, Concise, 2nd Edition

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Problem 15-9

The WACC formula seems to imply that debt is "cheaper" than equity--that is, that a firm with more debt could use a lower discount rate. Does this make sense? Explain briefly.

Answer: T