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7. The increase i n risk to equityholders when financial leverage is introduced is evidenced by: a. higher EPS as EBIT increases. b. a higher variability of EPS with debt than all equity c. increased use of homemade leverage d. the same value between levered and unlevered firms. MM Proposition I with taxes is based on the concept that: a. the optimal capital structure is the one that is totally financed with equity b. the capital structure of the firm does not matter because investors can use homemade leverage. 8. c, the firm of firm stays the same with leverage because the weighted average cost of capital stays the same. d. the value of the firm increases as total debt increases because of the interest tax shield 9. A firm is considering an emerging market project that costs $100,000 today and is expected to generate end-of-year annual cash flow of $20,000 forever. At what discount rate Adidas would be indifferent between accepting and rejecting the project? a. 10% b. 20% d. 4090 ?. 30% 10. Which of the following statements is true regarding capita l structure? a. In a world with no taxes and no bankruptcy costs, the optimal capital structure would be the one with 100% debt and no equity. b. In a world with no taxes and no bankruptcy costs, the value of a levered c. In a world with no taxes and no bankruptcy costs, the cost of equity does d. In a world with no taxes and no bankruptcy costs, you can increase the company would be the same as the value of an unlevered company not change with leverage share price of stock by increasing debt and reducing equity 11. A firm has 35%, 15%, and 50% of long-term debt, preferred stock and common stock, respectively for its total capital. If the before-tax costs of capital are 10%, 12%, and 1 8%, respectively, what is the weighted average cost of capital (WACC) for the firm? Assume that the tax rate is 40%. a. 8.5890 b. 12. I 8% c. 12.90% d. 14.30%