Chapter 14

(14-3) What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a 2-for-1 split? Assume that either action is feasible.

(14-5) Indicate whether the following statements are true or false. If the statement is false, explain why.

Chapter 15

(15-1) Shapland Inc. has fixed operating cost of $500,000 and variable costs of $50 per unit. If it sells the product for $75 per unit, what is the break-even quantity?

(15-2) Counts Accounting’s beta is 1.15 and its tax rate is 40%. If it is financed with 20% debt, what is its unlevered beta?

(15-3) Either Enterprise has unlevered beta of 1.0. Either is financed with 50% debt and has levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is additional premium that Either’s shareholders require to be compensated for financial risk?

(15-4) Nichols Corporation’ value of operations is equal is $500 million after a recapitalization (the firm had no debt before the recap). It raised $200 million in new debt and used this to buy back stock. Nichols had no short-term investment before or after the recap. After the recap, w_d=40%. What is S (the value of equity after the recap)?

(15-5) Lee Manufacturing’s value of operations is equal to $900 million after recapitalization. (The firm had no debt before recap). Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investment before or after the recap. After the recap, w_d = 1/3. The firm had 30 million shares before the recap. What is P (the stock price after the recap)?

Chapter 21

(21-1) Define each following term:

a. Interest tax shields; value of tax shield

b. Adjusted present value (APV) model

c. Compressed adjusted present value (CAPV) model

(21-2) Modigliani and Miller assumed that firms do not grow. How does growth change their conclusions about the value of the levered firm and its cost of capital?