TutorMe homepage
Subjects
PRICING
COURSES
SIGN IN
Start Free Trial
Vikram B.
Presently a passionate tutor, Ex-Goldman, Ex-JP Morgan
Tutor Satisfaction Guarantee
Corporate Finance
TutorMe
Question:

ABC Pharma Inc. is a pharmaceutical company that traditionally has not used debt to finance its projects. Over the last 10 years, it has also reported high returns on its projects and growth, and made substantial research and development expenses over the time period. The health care business overall is growing much slower now, and the projects that the firm is considering have lower expected returns. a. How would you justify the firmís past policy of not using debt? b. Do you think the policy should be changed now? Why or why not

Vikram B.
Answer:

Answer: a. The past policy of not using debt can be justified by noting that returns on projects were high (increasing the need for flexibility) and that earnings in the future were likely to be volatile (because of the growth). b. Given that returns on projects are declining, I would argue for a greater use for debt.

Finance
TutorMe
Question:

Two firms are considering borrowing. One firm has excellent prospects in terms of future projects and is in an area in which cash flows are volatile and future needs are difficult to assess. The other firm has more stable cash flows and fewer project opportunities and predicts its future needs with more precision. Other things remaining equal, which of these two firms should borrow more?

Vikram B.
Answer:

The second firm should borrow more because 1. It has lower bankruptcy costs due to more predictable cash flows. 2. It does not have as much of a need for flexibility because its future needs are known

Macroeconomics
TutorMe
Question:

Under what conditions will the return on equity on a project be equal to the internal rate of return, estimated from cashflows to equity investors, on the same project?

Vikram B.
Answer:

This will occur only if: 1. Earnings are equal to cash flows to equity, i.e., there are no non-cash charges, working capital or cap ex. 2. Earnings are level over time.

Send a message explaining your
needs and Vikram will reply soon.
Contact Vikram
Ready now? Request a lesson.
Start Session
FAQs
What is a lesson?
A lesson is virtual lesson space on our platform where you and a tutor can communicate. You'll have the option to communicate using video/audio as well as text chat. You can also upload documents, edit papers in real time and use our cutting-edge virtual whiteboard.
How do I begin a lesson?
If the tutor is currently online, you can click the "Start Session" button above. If they are offline, you can always send them a message to schedule a lesson.
Who are TutorMe tutors?
Many of our tutors are current college students or recent graduates of top-tier universities like MIT, Harvard and USC. TutorMe has thousands of top-quality tutors available to work with you.