Explain what is meant by business risk and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital? Explain.
Answer to relevant QuestionsPendergast, Inc., has no debt outstanding and a total market value of $180,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. If there is strong expansion in the ...STP Corp. uses no debt. The weighted average cost of capital is 8 percent. If the current market value of the equity is $18 million and there are no taxes, what is EBIT?For initial public offerings of common stock, 2010 was a relatively slow year, with about $30.7 billion raised by the process. Relatively few of the 94 firms involved paid cash dividends. Why do you think that most chose not ...Rudolph Corporation is evaluating an extra dividend versus a share repurchase. In either case, $11,000 would be spent. Current earnings are $1.40 per share, and the stock currently sells for $58 per share. There are 2,000 ...The Torrey Pine Corporation’s purchases from suppliers in a quarter are equal to 75 percent of the next quarter’s forecast sales. The payables period is 60 days. Wages, taxes, and other expenses are 20 percent of sales, ...
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