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Explain a quistclose trust and how it arises. 5marks
Smart Toys, currently has no debt, expects an EBIT of $45,000 every year forever. Its cost of equity is 16 percent. The corporate tax rate is 30 percent. The company can borrow at 8 percent.
a. What is the current value of the company?
b. What will the value of the firm be if the company takes on debt equal to 20 percent of its unlevered value? What if it takes on debt equal to 60 percent of its unlevered value?
c. What will the value of the firm be if the company takes on debt equal to 55 percent of its levered value? What if the company takes on debt equal to 40 percent of its levered value?
Under the tax rate of 40%, an unlevered firm Pacific Company’s WACC is currently 15 percent. The company can borrow at 6 percent.
a. What is Pacific Company’s cost of equity?
b. If the firm converts to 30 percent debt, what will its cost of equity be?
c. If the firm converts to 55 percent debt, what will its cost of equity be?
d. What is Pacific Company’s WACC in part (b)? In part (c)?
Ford Motor, an auto manufacturer, is debating whether to convert its all-equity capital structure to one that is 40 percent debt. Currently there are 8,000 shares outstanding and the price per share is $60. EBIT is expected to remain at $64,000 per year forever. The interest rate on new debt is 5.5 percent, and there are no taxes.
a. If the firm has a 100% dividend payout rate, what is the cash flow under the current capital structure to David who owns 160 shares of Ford Motor stock?
b. Assume David keeps all 160 of his shares. What will his cash flow be under the proposed capital structure of the firm?
c. Suppose David prefers the current all-equity capital structure, but Ford Motor does convert. Show how he could unlever his shares of stock to recreate the original capital structure.
d. Using your answer to part (c), is Ford Motor’s choice of capital structure relevant? Explain.
Explain the anti competitive conduct in the banking industry as provided by the banking and financial services Act of 1994
In an intertemporal optimizing model consumption, a consumer living from time zero (0) to time t has a longer utility: U (C)= ln C. The market interest rate is r and the consumer is assuming no inheritance.
Derive the consumption relationship and the marginal utilities between two adjacent periods.
Using a diagram, explain the time profiles of paths based on (i) above.
Show that consumption is proportional to the present value of future income at time zero (0) at a given interest rate.
Define Macroeconomics and shortly explain main issues of Macroeconomics?
Godfred & Sam are both at 40. At 20, Sam started saving GH¢100 per month at a bank that pays him 10% per annum towards his retirement. 10 years later Godfred opened a similar account, except that his contributions were GH¢200 at the end of each month also towards his retirement. Would you rather be Sam or Godfred?
What are the torts related to banks? 7marks
Show diagrammatically the relationship between average product and marginal product. Can there be a range of output in which marginal product falls but average product continues to rise? Give reasons.
#340153 on Dec 2023