Finance

Finance
1. Address the relationship between corporate finance and financial markets.
2. Compare the difference between MM proposition, trade-off theory, and pecking-order theory.
3. Streiber Publishing Company, an all-equity firm, generates perpetual earnings before interest and taxes of $2.5 million per year. It’s after-tax, all-equity discount rate is 20%. The company’s tax rate ia34%.
a. What is the value of Streiber Publishing.
b. If it adjusts its capital structure to include $600,000 of debt, what is the value of the firm?
c. Explain any difference in your answers.
d. What assumptions are you making when you are valuing Streiber?
4. Suppose the risk-free rate is 6.3% and the market portfolio has an expected rate of return of 14.8%. The market portfolio has a variance of 0.0121. Portfolio Z has a correlation coefficient with the market of 0.45 and a variance of 0.0169. According to CAPM, what is the expected rate of return on portfolio Z ?
5. Office Automation, Inc., is obliged to choose between two copiers, XX40 or RH45. XX40 costs less than RH45,but its economic life is shorter. The costs and maintenance expenses of these two copiers are given as follow. These cash flow are expressed in real terms.
Copier year 1 2 3 4 5
XX40 $700 $100 $100 $100
RH45 900 110 110 110 110 110
The inflation rate is 5% and the nominal discount rate is 14%. Assume that revenues are the same regardless of the copier, and that whichever copier the company chooses, it will buy the model forever. Which copier should the company chooses? Ignore taxes and depreciation.
6. GS and SS company both manage their cash flows according to Miller-orr model. GS’s daily cash flow is controlled between $100,000 and $200,000, whereas SS’s daily cash flow is controlled between $150,000 and $300,000. The annual interest rate they can get are 10% and 9% respectively, and the costs per transaction of trading securities are $2000 and $2500 respectively.
a. What are their respective target cash balances?
b. Which firm’s daily cash flow is more volatile?

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