(a) Financing sources tend to change across the firm life cycle. Identify two (2) sources of financing a small start-up business could explore to raise seed capital (beyond that provided by the entrepreneur starting the business) and two (2) sources of financing a large publicly-listed company might use to raise capital (b) Paper Ltd and Pen Ltd are each looking to borrow funds from a commercial bank for 5 years. Paper Ltd has an excellent credit rating and can borrow at the prime rate. Pen Ltd's credit rating is prime + 2. The current prime rate is 7%. The 30-year Treasury bond yield is 5%, 10-year Treasury bond yield is 4.5%, 5-year Treasury bond yield is 4%, and the 3-month Treasury bill yield is 3%. What loan rate should the bank quote for each of Paper and Pen? (c) If all the assumptions of M&M's original theory hold, except that there are company taxes, explain the effect on the value of a company as it shifts its capital structure more towards debt.

(a) Financing sources tend to change across the firm life cycle. Identify two (2) sources of financing a small start-up business could explore to raise seed capital (beyond that provided by the entrepreneur starting the business) and two (2) sources of financing a large publicly-listed company might use to raise capital (b) Paper Ltd and Pen Ltd are each looking to borrow funds from a commercial bank for 5 years. Paper Ltd has an excellent credit rating and can borrow at the prime rate. Pen Ltd's credit rating is prime + 2. The current prime rate is 7%. The 30-year Treasury bond yield is 5%, 10-year Treasury bond yield is 4.5%, 5-year Treasury bond yield is 4%, and the 3-month Treasury bill yield is 3%. What loan rate should the bank quote for each of Paper and Pen? (c) If all the assumptions of M&M's original theory hold, except that there are company taxes, explain the effect on the value of a company as it shifts its capital structure more towards debt.

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter1: Introduction To Finance For Entrepreneurs

Section: Chapter Questions

Problem 4EP

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