This implies that for levered firms with the return on capital employed greater than the required rate of return for investors, higher equity in capital structure is preferable to compared to debt. This paper shows that the Value of Levered Firm is summation of Value of Unlevered Firm, the ...
In the Modigliani-Miller equation, why is the market value of a levered firm greater than the market value of an equivalent unlevered firm? Explain why it is important for stock investors to understand correlations between stock returns....
Unlevered beta = Levered beta / [1 + (1 - Tax rate) * (Debt / Equity)] Unlevered beta is essentially the unlevered weighted average cost. This is what the average cost would be without using debt or leverage. To account for companies with different debts and capital structures, it’...
Why do options sell at prices higher than their exercise values? Why is a higher NPV conceptually better than a lower one? Explain why investors accept the project (e.g., merge, acquisition) while having a high internal rate of return (IRR). Explain why it is important for stock investors...
The company may consider the capital cost using debt—levered cost of capital. Alternatively, they may review the projectcosts without debt—unlevered. Cost of capital, from the perspective of an investor, is an assessment of thereturn that can be expectedfrom the acquisition of stock shares or...
The financial statement that provides knowledge regarding the outflow of the cash and the inflow of the revenues of the company is known as the cash flow statement. It helps the investors to evaluate the value of the stock of the compan...
B) Why does hedging create value only if the firm's cost structure is convex in the hedgeable risk? C) Explain whether financial risk management allows a bet Contrast (provide brief example) and explain the implications of ...