FIN 571 NERD Education Specialist /fin571nerd.com FIN 571 NERD Education Specialist /fin571nerd.com | Page 51
Purpose of Assignment The purpose of this assignment is to allow the
student an opportunity to explain what it means to have an efficient
capital market. Students will gain an understanding of the different
levels of market efficiency and how behavioral finance can inhibit
reaching market transparency. Assignment Steps Resources:
Microsoft® Word Explain in 525 words what it means to have
efficient capital market, including: • Describe the behavioral
challenges in achieving efficiency. • Discuss the three forms of
market efficiency. • What are the implications to corporate finance? •
Would you consider the real estate market an
efficient capital market? Please explain why or why not.
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FIN 571 Week 5 Assignment Effect of Debt Issuance on
Stock Valuation
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Purpose of Assignment The purpose of this assignment is to
demonstrate to students how the issuance of debt to purchase
outstanding common stock could affect the value of the company's
equity and redefine the capital structure. The problem will also allow
students to explore the effect of corporate taxes through debt
financing. Assignment Steps Resources:Corporate Finance Scenario:
Hightower, Inc. plans to announce it will issue $2.0 million of
perpetual debt and use the proceeds to repurchase common stock. The
bonds will sell at par with a coupon rate of 5%. Hightower, Inc. is
currently an all-equity company worth $7.5 million with 400,000
shares of common stock outstanding. After the sale of the bonds, the
company will maintain the new capital structure indefinitely. The
company currently generates annual pretax earnings of $1.5 million.
This level of earnings is expected to remain constant in perpetuity.
The tax rate is 35%. Prepare a 1,050-word memo advising the
management of Hightower, Inc. on the financial impact, including the
following: •
What is the expected return on the company's