1. A company has a debt-equity ratio of 0.54. The cost of equity is 15.7 percent, the pretax cost of debt is 6.8 percent, and the tax rate is 22 percent. What will be the cost of equity if the debt-equity ratio is revised to 0.65?

2. A company has an unlevered cost of capital of 13.2 percent, a cost of debt of 8.3 percent, and a tax rate of 21 percent. What is the target debt-equity ratio if the targeted cost of equity is 14.5 percent?

3. A company has a pretax cost of debt of 8.3 percent and an unlevered cost of capital of 13.7 percent. The total tax rate is 23 percent and the cost of equity is 15.6 percent. What is the debt-equity ratio?

4. A firm should select the capital structure that:

Select one:

a. is fully unlevered.

b. minimizes taxes.

c. maximizes the value of the firm.

d. produces the highest cost of capital.

e. equates the value of debt with the value of equity.

5. Financial managers should strive to maximize the current value per share of the existing stock to:

Select one:

a. increase employee salaries.

b. best represent the interests of the current shareholders.

c. provide managers with shares of stock as part of their compensation.

d. guarantee the company will grow in size at the maximum possible rate.

e. increase the current dividends per share.

6. A company expects its EBIT to be $147,000 every year forever. The company currently has no debt but can borrow at 7.6 percent while its cost of equity is 14.6 percent. The tax rate is 21 percent. What will be the value of the company if it borrows $40,000 and uses the loan proceeds to repurchase shares?

7. A company has a cost of equity of 16.31 percent and a pretax cost of debt of 7.8 percent. The debt-equity ratio is 0.56 and the tax rate is 21 percent. What is the unlevered cost of capital?

8. The growth of both sole proprietorships and partnerships is frequently limited by the firm's:

Select one:

a. by laws.

b. agency problems.

c. double taxation.

d. limited liability.

e. inability to raise cash.

9. Which business form is best suited to raising large amounts of capital?

Select one:

a. Corporation

b. Limited partnership

c. Sole proprietorship

d. Limited liability company

e. General partnership

10. Which one of the following parties has ultimate control of a corporation?

Select one:

a. Chairman of the board

b. Board of directors

c. Chief operating officer

d. Chief executive officer

e. Shareholders