10- (2 points) Given the following, what is the WACC? EBIT = $2 million; tax rate = 14%; debt = $4 million; unlevered cost of capital = 14%; cost of debt = 9%.

A) 12.8%

B) 13.0%

C) 13.2%

D) 13.4%

E) 13.6%

11- Which one of the following statements concerning financial leverage is/are correct?

A) Leverage is beneficial only when EBIT is relatively low.

B) M&M Proposition I states that financial leverage is irrelevant to the value of a firm.

C) Financial leverage lowers the risk level of a firm.

D) All of the above.

E) None of the above.

Use the following to answer question 13:

	Current capital structure	Proposed capital structure
Assets	$15,000,000	$15,000,000
Debt	$0	$6,000,000
Equity	$15,000,000	$9,000,000
Share price	$25	$22.5
Shares outstanding	600,000	400,000
Bond coupon rate		8%

There are no taxes. EBIT is expected to be $2.5 million. All values are market values.

13- What is the break-even EBIT for these two capital structures?

A) $720,000

B) $1,250,000

C) $1,440,000

D) $2,000,000

E) $2,500,000