FIN701- Test4

Timco has EBIT of 100. This should continue forever. The tax rate is 40%. The cost of equity is 12%. Find the firm's value and the WACC if Timco uses 50 in 5% debt.

Timco needs to invest 400 in new assets. They use a capital structure that is 40% debt and 60% equity. Next years net income is expected to be 500. Find the amount for the residual dividend.

ABC Company has a beta of 1.2. EBIT is 100. They currently have no debt. Find the new beta if they changed to using a capital structure that used 40% debt and 60% equity. The tax rate is 35%.

How can taxes affect the firm's optimal capital structure?

Why is it sometimes easier for an older, more established firm to raise external capital than it is for a new startup?

Find the value of a firm that can generate 300 FCF per year forever. The WACC is 9%.

Briefly describe two good things about a firm buying back it's own shares.

What is a possible reason that a signal sent to the market by a firm might not work?

How might the firm's level of business risk affect the optimal capital structure?

Why is an increase in dividends considered evidence that a firm's managers are not taking advantage of the agency relationship?