QUESTION 1

1. SPC Inc. has a capital structure of 30% debt and 70% equity, its tax rate is 25%, and its beta (leveraged) is 1.30. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta, b_U?

   		3.58
   		1.72
   		0.98
   		0.47

QUESTION 2

1. Suppose in the question above, SPC decided to change its capital structure such that it has 60% debt and 40% equity. What would the firms new levered beta be?

   		1.48
   		2.09
   		0.46
   		0.66

QUESTION 3

1. Amante Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 30% and 60%, and her staff has compiled the following projections for WACC at various debt levels.

   Debt/Capital Ratio	WACC
   30%	13%
   40%	10%
   50%	12%
   60%	15%

   Assuming that the firm uses only debt and common equity, what percentage of common equity should it have in its optimal capital structure?

   		30%
   		40%
   		60%
   		70%

QUESTION 4

1. Keller Co. has a target capital structure that consists of 35% debt and 65% equity. The company anticipates that its capital budget for the upcoming year will be $750,000. If Keller reports net income of $1,000,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio?

   		73.25%
   		68.30%
   		10.00%
   		51.25%

QUESTION 5

1. Emergency Medicals stock trades at $234 a share. The company is contemplating a 4-for-3 stock split. Assuming that the stock split will have no effect on the market value of equity what will be the companys stock price following the stock split?

   		$312.00
   		$175.50
   		$78.00
   		$58.50