A company has unleveraged beta of 1.3, risk free rate 6% and market risk premium for 6%. The applicable tax rate is 40%.

The company needs to finance its new project having three different scenarios of financing:

1. At the 0% debt level, the company WACC is *

a. 0.13%

b. 14%

c. 15.3%

d. 13.8%

e. None of the above

2. If the company is unleveraged, its Price per share is *

a. $20.3

b. $22.17

c. $19.65

d. $21.014

e. None of the above

3. If the company has 20% Debt, its WACC is *

a. 13.1%

b. 20.2%

c. 13.416%

d. 12.566%

e. None of the above

4. If the company has 80% Debt, its Price per share is *

a. $12.915

b .$10.256

c. $12.165

d. $11.695

e. None of the above

5. If the company is 80% leveraged, its WACC is *

a. 0%

b. 12.333%

c. 14.664%

d. 9.563%

e. None of the above

6. The optimal capital structure for the company is: *

a. 0% debt; 100% equity.

b. 20% debt; 80% equity.

c. 80% debt; 20% equity.

d. All of the above

e. None of the above

7. At the optimal capital structure; WACC is _____ and price per share is _____. *

a. 13.416%, 25.38%

b. $13.416, $25.3814

c.14.86%; $22.65

d. 13.416%, $25.38

e. None of the above

Scenario 1 2 3 Debt ratio Interest rate before tax) 0% 0% 20% 12% 80% 17% EPS $2.9 $3.8 $4.2 IN