1a.

an investor-owned firm, instantaneously increased its capital structure from 50:50 debt-to-capital to 70:30 debt-to capital. As a result of the change the standard deviation of company's expected returns (earnings) __________

Would increase

Cannot be determined from the information

Would remain unchanged

Would decrease

1b. True or False: the optimal cost of capital is very sensitive to small changes in capital structure

1c. T/F: the corporate cost of capital is the maximum return that can be expected from an investment project of average risk.

1d.

The following information about Company A is provided:

Before tax cost of debt	6%
Tax rate	22%
Expected return on equity	9%
Capital structure (debt:equity)	40:60

If Company A is a not-for-profit, the equation that best describes its corporate cost of capital (CCC) is __________

Group of answer choices

CCC = 6% x (1 - 0%) + 9%

CCC = 6% + 9%

CCC = 6% x 22% + 9%

CCC = (6% + 9%) x (1 - 22%)

None of these is the correct answer

1e.

If Company A is investor-owned, the equation which best describes its corporate cost of capital (CCC) is __________

Group of answer choices

None of these is the correct answer

CCC = 6% x 22% + 9%

CCC = 6% + (1 - 0%) + 9%

CCC = (6% + 9%) x (1 - 22%)

CCC = 6% + 9%