The pecking order theory of capital structure predicts that firms will fund positive NPV projects first with internally generated funds, then with debt, and finally with new equity. What is the primary insight of the pecking order story theory that leads to this funding ordering in which equity is only issued as a last resort?

In a firm-commitment IPO, the most likely reason that under pricing of new issues occurs more frequently than overpricing is:

A bond with 15 years left to maturity makes coupon payments of $40.00 semiannually and sells for $1,150.00. The bond’s annual yield to maturity (compounded semiannually) is:

Vacation Resorts is considering a new resort complex that will have an initial cost of $40 million. The resort complex will produce positive cash flows of $5 million per year in perpetuity. If the opportunity cost of capital is 14 percent per year, should Vacation Resorts build the new resort complex?

The risk-free rate is 4.00% per year and the market risk premium is 8.60% per year. Which of the following projects have positive NPVs? (Assume that we do not have the IRR borrowing/lending problem.)     Project   Beta Internal Rate of Return, % A 0.00 0.00 B 0.60 10.00 C 1.20 20.00

A local lottery now offers a choice of two payout options, cash or annuity. Under the annuity option, the total jackpot is paid out in equal annual payments over 25 years beginning today. Under the cash option, the winner receives a single payment today of one-half of the jackpot. At what annual interest rate are these two options equal? Ignore taxes.

Sprockley Company has just paid a $1 per share dividend. It is expected that dividends will grow at 16% per year for the next 2 years, at 10% the third year and 8% in year 4. After that, dividend growth is expected to be 3% per year forever. Sprockley’s equity β is 0.9. If Treasury bills yield 5% and the market risk premium is 8.3%, what should be Sprockley’s current stock price?

Your brother-in-law borrowed $1,000 from you 10 years ago and then disappeared. Yesterday he returned and expressed a desire to pay back the loan, including the interest accrued. Assuming you had agreed to charge him interest of 7.00% per year, and that he wishes to make five equal annual payments beginning in one year, how much would your brother-in-law have to pay annually (rounded to the nearest dollar) to extinguish the debt?

In this class, you will be using Honorlock, which comes with several etiquette expectations. You read about them on the previous page. Now, look at the picture and explain what Honor-Etiquette mistakes you see. There are four mistakes. 

Continuing with the same project analysis, recall that Organic Farms is considering an investment in a new irrigation system. The firm’s cost of capital, appropriate for this project, is 8.00% per year. The incremental free cash flows for the irrigation project are as follows:   Year Free Cash Flows 0 -$55,000 1 20,300 2 20,300 3 20,300 4 20,300    Compute the IRR for the project.   Round your answer to the nearest hundredth of a percent. For example, enter 7% as 7.00 or 6.625% as 6.63.