Question 2 O out of 3 points Dark Creek Corporation's CEO is selecting between two mutually exclusive projects. The company is obligated to make a $3,800 payment to bondholders at the end of the year. To minimize agency cost, the firm's bondholders decide to use a bond covenant to stipulate that the bondholders can demand an additional payment if the company chooses to take on the high-volatility project. How much additional payment to bondholders would make stockholders indifferent between the two projects? Cash flows pertaining to the two projects are shown in the table below. Economy Probability Low-Volatility Project Payoff High-Volatility Project Payoff Bad .40 $4,000 $2,900 Good .60 4,800 6,300 Question 7 O out of 3 points Edward Corporation expects an EBIT of $40,000 every year forever. The company currently has no debt and its cost of equity is 15 percent. The tax rate is 25 percent. The company is able to borrow at 8 percent. The CFO of the company decides to change the company's capital structure by taking on a fixed amount of debt forever. If Edward is worth $300,000 after the capital restructuring, how much does Hunter need to borrow? Question 8 O out of 3 points Southern Timber Company expects to have an EBIT of $10 million in the coming year, and its EBIT is expected to grow at a rate of 4% after that. Southern Timber is currently an unlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel of professional financial experts indicates that the company can enjoy a tax shield benefit of $35 million in firm value if the company changes its capital structure by allowing a certain amount of debt. What would be the value of Southern Timber Company if it decides to undertake the capital structure suggested by these financial experts? Question 9 O out of 3 points A firm has a debt-equity ratio of 0.5 and a cost of debt of 5 percent. The industry average cost of unlevered equity is 15 percent. What is the weighted average cost of capital for this firm? Ignore tax