Question 10

ABC has an unlevered cost of capital (Ra) of 13.2%, a cost of debt of 8.6%and a tax rate of 0%. What is the cost of equity for a firm (Rs) with a weight of debt of 68%?

Enter you answer in percentages rounded off to two decimal points.

Question 11

ABC Stores is an all-equity firm with 30,000 shares outstanding. The value of each share is $25. The firm is issuing $20,000 of debt and using the proceeds to reduce the number of outstanding shares. How many shares of stock will be outstanding once the debt is issued? Ignore taxes.

29,200 shares

26,800 shares

21,750 shares

23,100 shares

27,300 shares

Question 12

ABC Stores is an all-equity firm that has 20,000 shares of stock outstanding. The price per share is $20. The firm is considering borrowing funds at 8 percent interest and using the proceeds to repurchase 7,000 shares of stock. Ignore taxes. How much is the firm's borrowing?

$200,000

$260,000

$60,000

$400,000

$140,000