1.a.

1.b

1.c

1.d

If a firm does not have any debt in its capital structure, its equity is then called: levered equity O unlevered equity riskless equity Orisky equity none of the above Which of the following statements is FALSE? Modigliani and Miller argue that capital structure affects firm value even in a perfect market. We should not be discounting the cash flows of a firm that has leverage in its capital structure at the same discount rate that we use for firms with no debt in their capital structure. When a firm has leverage in its capital structure, the return required by investors will increase as investors want to protect themselves for the fact that the firm's equity is now riskier. Even if there is no default risk for a firm, the risk of the firm's equity will always go up if the firm has leverage in its capital structure. None of the above is false Wominjeka Inc. has 75 million shares outstanding with a market capitalization of $1.5 billion. The firm also has $800 million of debt in its capital structure. Wominjeka plans to issue new equity and use the proceeds to reduce its debt to zero. Assume perfect capital markets. What is the number of shares that Wominjeka needs issue to reduce its debt to zero? 15 million 25 million 30 million 40 million None of the above Wominjeka Inc. has 75 million shares outstanding with a market capitalization of $1.5 billion. The firm also has $800 million of debt in its capital structure. Wominjeka plans to issue new equity and use the proceeds to reduce its debt to zero. Assume perfect capital markets. Assume that as a shareholder who holds 150 shares in Wominjeka, you do not agree with the firm's decision to delever. What do you need to do to undo the effect of the firm's decision to reduce leverage to zero? borrow $2400 and buy 150 shares sell 150 shares and lend $2400 borrow $1600 and buy 80 shares sell 80 shares and lend $1600 None of the above