Chapter 6 work

Questions for Critical Thinking 7

Salvatore's Chapter 14:

a. Discussion Questions: 12 and 15.

b. Problems: spreadsheet problems 1 and 2.

Note:

1. Spreadsheet problem 1: Use table 14-4 as reference.

2. Spreadsheet problem 2: Use tables 14-5 and 14-6 as reference.

Froeb et al.’s Chapter 17:

a. Individual problems: 17–1 and 17–4.

Froeb et al.’s Chapter 19:

a. Individual problems: 19–5 and 19–6.

Note:

P19-6: Need to consider the adverse selection.

Note:

19–6: Consider with and without the adverse selection.

Salvatore's Chapter 15:

a. Discussion Questions: 7.

b. Problems: 8, 10, and spreadsheet problem 1.

Note:

1. P8: Remember the firm has a limited capital budget of $2.4 million for the coming year. In other words, the firm faces the capital rationing and should use the profitability index as its investment criterion (pp. 637–640).

2. P10: Use the dividend valuation model (pp. 642–643). “A share of the common stock of the company currently sells for eight times current dividends.”

3. Spreadsheet problem: Change the present value coefficient from 1/(1+0.5)n to 1/(1+0.05)n. That is the discount rate of 5% instead of 50%