In the table below, Widget Co's current capital structure has a Debt to Equity Ratio is 4 to 1. Assume management wants to maximize firm value and static theory holds true. What is management's best course of action? 13. Assets WACC Equity 300 300 Capital Structure 1 18.0% Capital Structure2 Capital Structure3 Capital Structure4 Capital Structure5 Capital Structure 300 600 15.0% 900 300 13.0% 1200 300 12.0% 1500 300 12.5% 14.0% 17.0% 2400 300 Capital Structure7 3000 300 a) Spend $300 in cash to retire $300 in debt b) Spend $600 in cash to retire $600 in debt c) Issue $300 debt to increase total assets by $300 d) Issue $600 debt to increase total assets by $600 e) Issue $900 debt to increase total assets by $90 Below are five comparable companies that compete in the Widget industry: Company V, Company W, Company X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the company. Use the financial statement information in the table below to help answer questions 14-17. Debt/Equity YTM Book Value Total Assets Tax Rate Net Income Beta Dividends Re Company V 100 30.0% 35.0% 1.25 0.5385 8.0% 26 65 3 14.3% 15.2% 12.9% 1060 265 Company W Company X Company Y Company Z 3.0000 9.0% 53 1.35 15 640 0.5625 6.0% 1000 35.0% 120 1.10 40 0.4925 6.0% 970 30.0% 194 1.15 650 64 13.4% 4.0000 11.0% 100 30.0% 1.40 20 15.6% Compared to larger companies in the Widget industry, smaller companies in the Widget industry 14. A. have a higher payout ratio B. have a lower retention ratio C. have a lower effective tax rate D. have a faster long term growth rate E. have more debt as a percentage of the capital structure The CAPM was used to calculate the cost of equity (Re) for each company in the table. Which of the following statements is most likely TRUE: 15. A. a 2 year US treasury is yielding 2% and the expected market return is 11% B. a 2 year US treasury is yielding 3% and the expected market return is 13% C. a 10 year US treasury is yielding 3% and the expected market return is 9% D. a 10 year US treasury is yielding 2% and the expected market return is 10% a 10 year US treasury is yielding 3% and the expected market return is 12% E