Explain why there is a cost to using reinvested earnings; that is,why aren’t reinvested earnings a free source of capital?

Q: Why do DCMs use dividends and not earnings in their formulas? a. Because earnings are not equal to…

A: DCMs seek to evaluate the fair value of a company regardless of current market conditions, taking…

Q: How are human and physical capital investment decisions similar? How do they differ? What determines…

A: Physical capital is the stock of equipment and structures used as an input to produce goods and…

Q: why an increase in cost of debt will increase cost of capital associated with business risk and…

A: The cost of capital is the minimal rate of return that a company must earn before it may generate…

Q: Is it because: a. The capital gain will be different because the dividend did not change. or…

A: Capital gain can be calculated s follows: Capital gain=(Sale price - Cost price)Cost price* 100

Q: Explain, with examples, why accruals reverse overstate the firm's profit.

A: Aggressive accounting is related to the practice of accounting which is designed in order to…

Q: Under what circumstances might a salary or bonus be more appropriate than interest on capital…

A: Partnership: The form of business entity which is formed by an agreement, owned and managed mutually…

Q: If the generated income cash of  some company were used to buy back common stock,thus reducing the…

A: Return on equity means the profit as percentage on equity. Equity means the owner funds. Return on…

Q: risk implications of improving net profit margin to increase Return on Equity?

A: Net profit margin is the percentage of net profit to sales revenue

Q: What does capital structure theory attempt to do?What lessons can be learned from capital structure…

A: Capital structure is defined as mixture or proportion of all kinds of capital such as debt, equity…

Q: When comparing levered vs unlevered Capital structures why does leverage work to increase FPS for…

A: There can be two types of firms based on their capital structure. The firm which is completely…

Q: Why are the costs of selling equity so much larger than the costs of selling debt?

A: The Debt and Equity are part of capital structure of a company. Cost of equity is the minimum…

Q: Which of the following statements is CORRECT? Profit have no effect on capital Profit will…

A: Profit means the difference between the revenue from operation and total cost . Capital means the…

Q: Explain the difference between a simple and complex capital structure as the terms are used in the…

A: Earning per share is the number of earnings or profits available to each outstanding share of the…

Q: For what three main reasons is profit maximization inconsistent with wealth maximization?

A: Profit maximization is the traditional approach which only focuses on increasing the profit of the…

Q: What is capital rationing, what conditions lead toit, and how should it be dealt with?

A: Capital budgeting is a process in which capital projects are assessed in terms of their viability…

Q: Complete the sentences : .......................... of profit maximization does not take into…

A: Answer: The objective of profit maximization, The objective of wealth maximization

Q: What is the difference between dividends that are declared and dividends that are paid

A: There exist difference between dividend that is declared and paid

Q: How do the availability and cost of outside capital affect dividendpolicy?

A: Dividends are the profits that are paid to the stockholders. The company always tries to achieve a…

Q: What information does the payback convey that is absent from the other capitalbudgeting decision…

A: Payback period method is a traditional method used in capital budgeting decisions which is used to…

Q: The cost of capital is a hurdle rate. Is this statement true? Why or why not?

A: The question is based on the concept of minimum required rate for any project . Hurdle rate is the…

Q: What is the effect of an increase in the cost of capital on the payback period, profitability index…

A: The correct answer in the given question is: Payback period will not change, Profitability will…

Q: How would you argue for a significant increase in both dividends and repurchases instead of using…

A: Introduction: Stock repurchase allows the company's promoters as well as key stakeholders to reclaim…

Q: Wealth maximization does not take into account the timing of earnings, while Profit maximization…

A: Wealth maximization means maximization of market price of share whereas profit maximization is…

Q: Which is also known as wealth maximization? a. Value Maximization. b. Stakeholder Theory. c. Profit…

A: Wealth Maximization is the concept of maximization of value of the company. It means maximization of…

Q: In the extractive industries, businesses may pay dividendsin excess of net income. What is the…

A: Dividends: This is the amount of cash distributed to stockholders by a company out its earnings,…

Q: why the company logo is an asset? what does mean by retained earning (when it is not distributed as…

A: Logos are intangible assets of a company. Intangible assets provide value to a company because they…

Q: Why are retained earnings not a free source of finance? If so, why are they nonetheless such a…

A: Retained earnings : The part of earnings that is not distributed as dividends is known as retained…

Q: Why is "Projecting Growth Beyond What the Capital Being Valued Will Support" considered a common…

A: Income Approach There are two different model which was incurred in the income approach.  The…

Q: Why can we not invest net income? Explain with an example?

A: The net income is the net profit of the company earned during the period. The net income includes…

Q: How are paid-in-capital and retained earnings: Similar? Different?

A: The answer is as fallows

Q: What is free cash flow, and how does it work? If you were an investor, why could you be more…

A: When all operational costs and capital expenditures have been met, free cash flows represent the…

Q: How a firm splits its income between retained earnings and dividends does not affects its rate of…

A: Income is the revenue earned by the company after the charge of all the associated expenses. A…

Q: Compare Dividend Valuation Model with Capital Asset Pricing Model in the context of calculating cost…

A: The dividend discount model and the capital asset pricing model are two methods for estimating cost…

Q: How does the equity method discourage the manipulation of net income by investors?

A: Equity method is used for accounting for investments by one company in another company when the…

Q: How and why should the cost of capital change when the Company must rely on new issues of common…

A: Issuance of new stock is the process by which a listed company tries to acquire additional capital…

Q: (b) Modigliani-Miller theory argues that both capital structure and dividend policy are irrele in…

A: Taxes are very important impact on the capital structure and dividend because the after tax cost of…

Q: Profitability index: What is the profitability index, and why is it helpful in the capital rationing…

A:

Q: The firm's cost of capital may also be referred to as the firm's opportunity cost of capital.  True…

A: Firm's Cost of capital may be referred with different names.

Q: True of False? Contributed capital decreases when the company has a net loss. If your answer is…

A: Net income is an excess of revenue over expenditure and Net loss indicates that there are more…