FIN 571 NERD Education Specialist /fin571nerd.com FIN 571 NERD Education Specialist /fin571nerd.com | Page 52

equity before the announcement of the debt issue? •
Construct the
company's market value balance sheet before the announcement of the
debt issue. What is the price per share of the firm's equity? •
Construct the company's market value balance
sheet immediately after the announcement of the debt issue. • What is
the company's stock price per share immediately after the repurchase
announcement? •
How many shares will the company repurchase
as a result of the debt issue? How many shares of common stock will
remain after the repurchase? •
What is the required return on the
company's equity after the restructuring? • Discuss the advantages
and disadvantages of debt financing over equity financing.
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FIN 571 Week 5 Connect Problems
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1.The difference between the present value of an investment’s future
cash flows and its initial cost is the: payback period. internal rate of
return. profitability index. discounted payback period. net present
value. 2.Which statement concerning the net present value (NPV) of
an investment or a financing project is correct? An investment project
that has positive cash flows for every time period after the initial
investment should be accepted. Any type of project should be
accepted if the NPV is positive and rejected if it is negative. A
financing project should be accepted if, and only if, the NPV is
exactly equal to zero. Any type of project with greater total cash
inflows than total cash outflows, should always be accepted. An
investment project should be accepted only if the NPV is equal to the
initial cash flow. 3.The primary reason that company projects with
positive net present values are considered acceptable is that: they
create value for the owners of the firm. the investment