Question
3. in a perfect capital market, a 100% equity financed firm has an unlevered cost of equity of 10% and value of $10m. now it
3. in a perfect capital market, a 100% equity financed firm has an unlevered cost of equity of 10% and value of $10m. now it raises $5m debt and uses it to buy back shares from the market. if cost of debt is 5%, what is its new levered cost of equity? ( Single Choice)
Answer 1: 15%
Answer 2: 10%
Answer 3: 5%
Answer 4: 7.5%
4. in a perfect capital market, a 100% equity financed firm has an unlevered cost of equity of 10% and value of $10m. now it raises $5m debt and uses it to buy back shares from the market. if cost of debt is 5%, what is its new WACC? ( Single Choice)
Answer 1: 10%
Answer 2: 15%
Answer 3: 5%
5. a firm maintains a constant level of debt of $10m. If the tax rate is 40%, what is the additional firm valued added by the debt if cost of debt is 5%? ( Single Choice)
Answer 1: 4m
Answer 2: 0.5m
Answer 3: 0.2m
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started