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[indruction for 92. -25) 25. Suppose that the manager of AHC can enly raile capital theough stock andror bond wuances Firm ABC, has been operating

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[indruction for 92. -25) 25. Suppose that the manager of AHC can enly raile capital theough stock andror bond wuances Firm ABC, has been operating with Debt-to-iquity (D/t) ratio = 1 In this cait, the focasion cont of equy and ofebt are Sh and by retinectirely. Then, what woid The manager of ABC wans to maintan this captal structure. Now (on Jartuay 1, 2022h the be tha minimum piesent value of the future (erpectedicash flam from nivs longiterm icuratiners. manager is planning to rase capital for a lonfteterm insestment that requies 48 malion at Me marager decides 10 acceor this imvesmienr? finfomation of The manager of ABC hopes that the newly inyed bond is iraded as "Par bond? A) $48 milion in the market. To do that the marager of ABC asks 5 d.P. (the credt rating agency) about the Ei $495 milian new bonds consibon. Ssp recommends the following condtions c) $50 tration O) 5505 milion Par value $1,000/ Coupon rate: fos / Annuarccoupon puyment IInformatian \&s coeridering the cunent credit rating on ABC, the manager can sye bank loars 26. Which one of the folowing cav make the capital structure of a compary irreievantl? at 91 of befoee-tax cous A) Taves Finlormation (y) The comenon sock of AEC. is currenty trading at $20 per share. Asc will pay a interest tax shield dividend of 52 per thare at then end of the year fon December 31,20223 . Homemade leverage Uirformation di in recent years, AeCs profits and dividends have grown at an average annual rate of 5% and this growth rate in expected to continue forerer. D) Debt equity ratio that is greater than 0 but less than 1 findormation Tax rate = 40N. 27. Which one of the following is the molt inappropiate about the MaiM Propostion I The value of the firm is. NOI affected by changes in the capity shuctire? A) This is a theory based on the pertect capital market where there are no cocporate taus and 23. Assuming that there is no flocason cots for issuance corrh, what is the minimun fpossbied x. bankretcy coses (and so on) af WACC foe ABC? 5) An increate it financial leverage increasec the risk of equity and thus the required rate of renum A) 5.4% on equity increales B) 60% C) Two firme generabing the same ariount of canh flows with the same butiness risk will hree the G7i.ms same ferm value. D) 102% D) By danging the capital structure of a compary, (stocki investors can sometimes obtain a higher nortflilio perfenemance. 24. Astarning that there is no flotation tost for insuance costh, what is the maximum (ocsible 2 of WaCC for AlC? 28. The MAM Proposition If is the proposition that: A) B.006 A) the cost of equiy depends on the debt-equity ratio and the tax rate. E) 10595 B) a fems cost of equty is a linear function with a positire slope. C) 125% C) the colt of equifr is equivacent so the required rate of reburn on foverall assets. D] 150% D) the site of the pie does nat depend on how the pie is tiliced

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