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1. Which of the following statements is CORRECT?
a. If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.
b. A firm with a relatively high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal.
c. There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
d. In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
e. Suppose a firm has less than its optimal amount of debt. Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity.
2. One advantage of the payback method for evaluating potential investments is that it provides information about a project's liquidity and risk.
a. True
b. False
Little Books Inc. recently reported $6 million of net income. Its EBIT was $10.2 million, and its tax rate was 40%. What was its interest expense? find the pretax income. The difference between EBIT and taxable income must be the interest expense.
Seamus Finnigan has the opportunity to receive $18,000 now or $25,000 in 4 years. If Seamus can earn 5 percent on his investments, what is the present value of the $25,000 payment (rounded to the nearest dollar)?
Lobo Banks normally provides term loans that require repayment in a series of equal annual installments. If a $10 million loan is made, what would be the annual end-ofyear payments.
You are borrowing 200,000 on a 30 year, 12% apr, monthly payment mortgage loan. How much will be your principal repayment from your monthly mortgage payment at the end of the second month?
Some time ago, Vanessa purchased eleven acres of land costing $58,500. Today, that land is valued at $253,167. How long has she owned this land if the price of the land has been increasing at 9% per year? On your ninth birthday, you received $500 whi..
You purchase a stock today for $32.38. You think a similar risk investment should earn 11.6%. You plan to hold the stock for 3 years. If you sell the stock for $40.00, would you reach your required investment goal?
What would be your bond equivalent yield if you sold the bond for current market price of ?$1,042??
Airnet Auto Corporation issued bonds with a coupon rate of 12 percent, pay coupons semiannually, What is the yield to maturity?
By how much must the cost of capital estimate deviate to change the decision?
Suppose that you generate a cash based income statement and determine that CFO equals 75 percent of cash dividends paid and payments on current maturities of long term debt. What is the significance of this in terms of the firm's cash flow position?
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. Over the years, the company expanded into manufacturing and is now a reputable manufact..
Estimate the stock price once this transaction is announced. Based on this? information, which level of debt is the best choice for? DFS?
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