Answer: <em>From the given comprehension above if the information provided is true then the strongest counterargument for the implementation of this plan would be that , </em><u><em>BioMd has a strong R&D orientation and innovation and risk taking are the major values that the company promotes</em></u><em><u>.</u></em>
Here, we've been provided with the information that Earlene Gibson designs a program where stages of socialization is an "knockout tourney" and a new hire is out of the company if they fail. Thereby submitting the same to the CEO for approval. This states that the company do promotes value such as risk taking.
<u><em>Therefore the correct option is (b)</em></u>
Answer with Explanation:
<h2><u>Requirement 1:</u></h2>
Modigliani & Miller's theorem helps understanding the value of the company, the factors that results in change in the value of the company and the financial risk that increases the firm's Weighted Average Cost of Capital.
M & M proposition 1:
The M & M proposition 1 (or M & M without Tax model) says that the value of the firm remains the same no matter what is the percentage of debt and equity in the capital structure hence the primary focus of the management must be to decrease cost and increase the return on the investment.
M & M proposition 2:
However later, due to increased critism of not considering the tax implications on the WACC, M & M presented a modified model which is also known as M & M With Tax Model. In it he acknowledges the importance of tax in calculating the WACC and he is of the opinion that the injection of the debt reduces the WACC. Hence the maximum level of debt must be used to exploit all the available investment opportunities.
The value of the company can be calculated using the following formula:
Value of the Company = Free Cash flow * (1 + g) / (WACC - g)
The changes in the capital structure results in changes to firm's WACC which changes the value of the company. This clearly shows that if the WACC can be reduced then the value of the firm would increased. Hence M & M model is useful in predicting the Optimal Capital structure that would give lowest WACC and thus highest value of the company.
<h2><u>Requirement 2:</u></h2>
The basic assumptions of M & M proposition without tax Model are as under:
- There are no transaction costs on trading of securities
- There are no taxes.
- The market is perfect market which means that the investor and the corporation have same information which doesn't impacts the decision making of both entities.
- The Floatation costs are zero which means that their are no issuance costs, listing expenses, etc.
- The taxes on the Dividend distribution are also zero.
The basic assumptions of M & M proposition with tax Model are as under:
- There are no transaction costs on trading of securities
- The capital market is perfect market which means that the investor and the corporation have same information which doesn't impacts the decision making of both entities.
- The Floatation costs are zero which means that their are no issuance costs, listing expenses, etc.
Answer:
Return on investment
X * 0.06 + (1-X)*0.1 = 0.075
<u>where: </u>
1>X >0.30
X is the percentage invest on bond fund
It needs to invest 62.5% in the bond fund
and 37.5% in the stock und to achieve 7.5% return
Explanation:
We have a certain amount divided into two option.
being X the bond fund the rmainder (1 - X) will be invested in the stock fund
We want at least an X of 30%
and achieve 7.5% return
0.06X + 0.1 - 0.1X = 0.075
0.1-0.075 = 0.04X
X = 0.025/0.04 = .625 = 62.5%
