8. If Miller and Modigliani had incornorated the costs of bankruptey into their model, it is unlikely that they would have concluded that 100% debt financing is optimal. a. True b. False 9. Bailey and Sons has a levered beta of 1.30, its capital structure consists of 35% debt and 65% equity, and its tax rate is 40%. What would Bailey's beta be if it used no debt, i.e., what is its unlevered beta? a. 0.85 b. 0.87 c. 0.92 d. 0.98 e. 1.05 10. Lee Publishing's tax rate is 40%, its beta is 1.20 (unlevered beta), and it uses no debt. However, th CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 4.0% and the market risk premium is 5.0%, by how much would the capital structure shift change the firm's cost of equity? a. 1.23% b. 1.35% c. 1.54% d. 1.60% e. 1.65% 11. Kim Manufacturing's value of operations is equal to $1100 million after a recapitalization. (The firm had no debt before the recap.) Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd =40%. The firm had 30 million shares before the recap. What is P (the stock price after the recap)? a. $36.67 b. $40 c. $43.33 d. $45 12. Which of the following actions should Reece Windows take if it wants to reduce its cash convers =ycle? a. Take steps to reduce the DSO. b. Start paying its bills sooner, which would reduce the average accounts payable but not affec sales. c. Sell common stock to retire long-term bonds