Question
1.If all the assumptions behind the Modigliani and Miller theorems are true, whenever the firm decreases its use of debt and increase its use of
1.If all the assumptions behind the Modigliani and Miller theorems are true, whenever the firm decreases its use of debt and increase its use of equity by the same amount, its
A.cost of equity does not change and its stock price does not change.
B.cost of equity increases and its stock price decreases.
C.cost of equity increases and its stock price does not change.
D.cost of equity decreases and its stock price increases.
E.cost of equity decreases and its stock price does not change.
2.
ABC Corp. is considering a project that will provide a net cash inflow of $107,822 for the firm during the first year, and the cash flows are projected to grow at a rate of 4 percent per year forever. The project requires an initial investment of $1,200,000. What is the IRR of this project?
(Put the cost in percentages. If your answer is 11.1111% or 0.111111, then put in 11.11 .)
3.
Suppose we have a corporate bond issue currently outstanding that has 20 years left to maturity. The coupon rate is 10%, and coupons are paid semiannually. The bond is currently selling for $900 per $1,000 bond. What is the firm cost of debt?
A. 9.2%
B. 5%
C. 11.27%
D. 10%
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