Corprate Issuance

Corp: upgrading old production facilities to cut costs is what project type?

Going concern

Corp: changing processes to meet a new regulation is what project type?

Regulatory/compliance

Corp: researching new products based on a new technology is what project type?

Other (new line of business)

Corp: what causes a project to have multiple IRRs?

Cash flow signs changing more than once

Corp: if a project has multiple IRRs, how should you evaluate it?

Use NPV at the required return

Corp: what rate does IRR assume cash flows are reinvested at?

The IRR itself

Corp: judging a project by its effect on short-term EPS or ROE is...

A pitfall (use NPV instead)

Corp: assuming competitors won't respond to a profitable project is...

A pitfall (expect new entrants)

Corp: how are sunk costs treated in capital allocation?

Ignored

Corp: which source of capital gets the (1 − t) tax adjustment in WACC?

Debt only

Corp: adjusting the cost of preferred stock for taxes in WACC is...

Wrong (only debt is adjusted)

Corp: what is the WACC formula, in words?

wd × rd × (1 − t) + wp × rp + we × re

Corp: what do MM assume about borrowing and lending?

Investors can borrow and lend at the risk-free rate

Corp: what do MM assume about investor expectations?

Homogeneous (identical) expectations

Corp: what do MM (original) assume about taxes and costs?

No taxes, transaction costs, or bankruptcy costs

Corp: under MM without taxes, as D/E rises, the cost of equity...

Increases

Corp: under MM without taxes, as D/E rises, WACC and firm value...

Stay the same

Corp: under MM with taxes, as debt rises, WACC...

Falls (debt tax shield)

Corp: under the pecking order theory, which financing source is most preferred?

Internal funds (retained earnings)

Corp: under the pecking order theory, private debt or public debt comes first?

Private debt, then public debt

Corp: under the pecking order theory, which financing source is least preferred?

New equity

Corp: uncollected receivables or obsolete inventory are a...

Drag on liquidity (inflows delayed)

Corp: paying suppliers early or reduced credit lines are a...

Pull on liquidity (outflows sped up)

Corp: regular bank credit lines are what kind of liquidity source?

Primary source

Corp: which business form has limited liability for some owners AND pass-through taxes?

Limited partnership

Corp: which business form is taxed at both the company and shareholder level?

Corporation

Corp: a paid consultant to the company serving on its board is...

Not independent (paid relationship)

Corp: a former CEO of the company serving on its board is...

Not independent

Corp: an executive from a company in a different industry serving on the board...

Can be independent