Question
2/3- Consider two firms that are both in the paper industry and have exactly the same business risk. Both firms are taxable at a marginal
2/3- Consider two firms that are both in the paper industry and have exactly the same business risk. Both firms are taxable at a marginal rate of 21%. If firm 1 has a target leverage ratio of 20% and firm 2 has a target leverage ratio of 10%, then
Group of answer choices
firm 1 will have the same after-tax WACC as firm 2.
firm 1 will have a lower after-tax WACC than firm 2.
there is not enough information to determine which firm will have a higher after-tax WACC.
firm 1 will have a higher after-tax WACC than firm 2.
Suppose you own a call option on Apple stock with a strike price of $150. The option will expire one year from today. Suppose Apple will not pay dividends in the next year. The annual risk-free rate of interest is 3%. The current stock price of Apple is $170 per share and Apples returns have an annual volatility of 25%. Which of the following factors would decrease the value of your option (holding everything else constant)?
Group of answer choices
All of these factors would increase the value of the option.
An increase in the volatility of Apples returns to 30%.
An increase in Apples stock price to $190.
A decrease in the risk-free rate of interest to 2%.
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