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  1. The corporate structure – ownership rights and limitedliability – Profitability and the markets

What is the difference between a sole proprietorship, apartnership, and a corporation?

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What is Capital Budgeting and what does the Capital Structure ofa company refer to?

What is the “cost of capital” for a company?

What is CAPM?

What is the book value of a company as opposed to its marketvalue?

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Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

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Suppose Levered Bank is funded with 1.6 % equity and 98.4 %debt. Its current market capitalization is ​$9.72 ​billion, andits​ market-to-book ratio is 1.1. Levered Bank earns a 4.23 %expected return on its assets​ (the loans it​ makes), and pays 3.6% on its debt. New capital requirements will necessitate thatLevered Bank increase its equity to 3.2 % of its capital structure.It will issue new equity and use the funds to retire existing debt.The interest rate on its debt is expected to remain at 3.6 %. a.What is Levered​ Bank's expected ROE with 1.6 % ​equity? b.Assuming perfect capital​ markets, what will Levered​ Bank'sexpected ROE be after it increases its equity to 3.2 %​? c.Consider the difference between Levered​ Bank's ROE and its cost ofdebt. How does this​ "premium" compare before and after the​ Bank'sincrease in​ leverage? d. Suppose the return on Levered​ Bank'sassets has a volatility of 0.26 %. What is the volatility ofLevered​ Bank's ROE before and after the increase in​ equity? e.Does the reduction in Levered​ Bank's ROE after the increase inequity reduce its attractiveness to​ shareholders? Explain.

A firm has the following capital structure: £100 million ofequity (market value) with 100 million shares outstanding, and £100million of debt. The beta of the firm’s stock is 1.6. The firm’scost of equity is 10 percent, and the yield on riskless bonds is 2percent. There is no tax. Assuming that the firm can borrow at therisk-free rate and that both CAPM (Capital Asset Pricing Model) andthe Modigliani-Miller theorem hold, answer the following questions.i) What is the share price of the firm? ii) What is the WACC of thefirm? iii) What should be the expected return on the marketportfolio? iv) Suppose the firm changes its capital structure sothat its debt increases to £140 million, and the equity decreasesby £60 million. What should be the firm’s cost of equity after thechange?

read chapter 1 from Corporate Finance customized ehrhardt &brigham 6th edition book and answer all the question.

1-1 Define each of the following terms:
a. Proprietorship; partnership; corporation; charter; bylaws

b. Limited partnership; limited liability partnership;professional corporation

c. Stockholder wealth maximization

d. Money market; capital market; primary market; secondarymarket

e. Private markets; public markets; derivatives
f. Investment bank; financial services corporation; financialintermediary

g. Mutual fund; money market fund

h. Physical location exchange; computer/telephone network
i. Open outcry auction; dealer market; automated tradingplatform
j. Production opportunities; time preferences for consumption k.Foreign trade deficit

1-2 What is a firm’s fundamental value (which is also called itsintrinsic value)? What might cause a firm’s intrinsic value to bedifferent from its actual market value?

1-3 What are some similarities and differences between the NYSEand the NASDAQ Stock Market?

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