Question 10

Suppose a firm wishes to gradually increase its debt from a weight of 20% to a weight of 30% over the next 5 years. Which of the following methods could be used to determine how this would affect the firm's valuation?

a. FCF valuation model

b. FCFE valuation model

c. compressed APV valuation model

d. both the FCF and FCFE valuation models

Question 11

Koone Corporation's capital structure is 70% equity and 30% debt. Its levered cost of equity is 12%, and its cost of debt is 7%. What is its unlevered cost of equity?

a. 7.6%

b. 9.5%

c. 17.1%

d. 10.5%

Question 12

Which of the following statements regarding the CAPV model is NOT accurate?

a. CAPV stands for compressed adjusted present value.

b. The CAPV model allows risky debt with a nonzero debt beta.

c. The CAPV model assumes that the tax shield should be discounted at the cost of debt.

d. The CAPV model allows nonzero growth.

Question 13

Investment banks have an incentive to recommend an offer price that _____ the target's true value.

a. is slightly higher than

b. is slightly lower than

c. accurately reflects

d. is significantly higher than