Question 22 1 points Save Anger Suppose a firm expects to generate free cash flows of $100 million per year, and the discount rate for these cash flows is 8%. The firm pays a tax rate of 35%. A raider is poised to take over the firm and finance it with $800 million in permanent debt. The raider will generate the same free cash flows, and the takeover attempt will be successful if the raider can offer a premium of 20% over the current value of the firm. What level of permanent debt will the firm choose, according to the managerial entrenchment hypothesis? O A $250 million B. $70 million C. 572 milion D. $100 milion Moving to another question will save this response Question 22 of 27 Cose Window Question 23 1 points Save Anger Which of the following approaches can be adopted to arrive at optimal capital structure? A All of the options B. The adjusted present value approach C. The Life cycle approach D. The relative approach Question 24 1 points Save Answer Suppose Moon Corp. has a value of $176 million if it continues to operate but has outstanding debt of $181 million that is now due. If the firm declare bankruptcy, bankruptcy costs will equal $15 million, and the remaining $161 milion will go to creditors. Instead of declaring bankruptcy, management proposes to exchange the firm's debt for a faction of its equity in a workout. What is the minimum faction of the firm's equity that management would need to offer to creditors for the workout to be successful O A 981 B.947 OC.89 0.92 Question 25 1 points Save Auver Which one of the following industries have relatively low optimal debt levels according to the trade-off theory? A. Tobacco firms B. Accounting firms Online gaming company D. Mature restaurant chains Question 26 1 points Save Answer Grevillea Inc has no debt and expects to generate free cash flows of $20 milion each year. Grevillea inc believes that if it permanently increases its level of debt to $50 million, the risk of financial distress may cause it to receive less favourable terms from its suppliers. As a result, Grevillea inc's expected free cash flows with debt will be only $15 million per year. Suppose Grevillea inc's tax rate is 30%, the risk-free rate is 3, the market return is 7%, and the beta of Grevillea inc's free cash flows is 1.2 (with or without everage). Grevillea inc's value after it has increased its level of debt is closest to O A $185 million B. $220 milion C. $207 milion D. 5152 milion Question 27 1 points Save Answer Grevillea Inc has no debt and expects to generate free cash flows of $18 milion each year. Grevillea Inc believes that if it permanently increases its level of debt to 545 million, the risk of financial distress may cause it to receive less favourable terms from its suppliers. As a result, Grevillea inc's expected free cash flows with debt will be only $15 million per year. Suppose Grevillea Ine's tax rate is 35%, the risk free rate is 3 the market risk premium is 7%, and the beta of Grevillea Ine's free cash flows is 1.3 (with or without leverage) Grevillea Ine's value after it has increased its level of debt is closest to O A $220 million B. $185 milion OC. $140 million D. $152 million Question 22 1 points Save Anger Suppose a firm expects to generate free cash flows of $100 million per year, and the discount rate for these cash flows is 8%. The firm pays a tax rate of 35%. A raider is poised to take over the firm and finance it with $800 million in permanent debt. The raider will generate the same free cash flows, and the takeover attempt will be successful if the raider can offer a premium of 20% over the current value of the firm. What level of permanent debt will the firm choose, according to the managerial entrenchment hypothesis? O A $250 million B. $70 million C. 572 milion D. $100 milion Moving to another question will save this response Question 22 of 27 Cose Window Question 23 1 points Save Anger Which of the following approaches can be adopted to arrive at optimal capital structure? A All of the options B. The adjusted present value approach C. The Life cycle approach D. The relative approach Question 24 1 points Save Answer Suppose Moon Corp. has a value of $176 million if it continues to operate but has outstanding debt of $181 million that is now due. If the firm declare bankruptcy, bankruptcy costs will equal $15 million, and the remaining $161 milion will go to creditors. Instead of declaring bankruptcy, management proposes to exchange the firm's debt for a faction of its equity in a workout. What is the minimum faction of the firm's equity that management would need to offer to creditors for the workout to be successful O A 981 B.947 OC.89 0.92 Question 25 1 points Save Auver Which one of the following industries have relatively low optimal debt levels according to the trade-off theory? A. Tobacco firms B. Accounting firms Online gaming company D. Mature restaurant chains Question 26 1 points Save Answer Grevillea Inc has no debt and expects to generate free cash flows of $20 milion each year. Grevillea inc believes that if it permanently increases its level of debt to $50 million, the risk of financial distress may cause it to receive less favourable terms from its suppliers. As a result, Grevillea inc's expected free cash flows with debt will be only $15 million per year. Suppose Grevillea inc's tax rate is 30%, the risk-free rate is 3, the market return is 7%, and the beta of Grevillea inc's free cash flows is 1.2 (with or without everage). Grevillea inc's value after it has increased its level of debt is closest to O A $185 million B. $220 milion C. $207 milion D. 5152 milion Question 27 1 points Save Answer Grevillea Inc has no debt and expects to generate free cash flows of $18 milion each year. Grevillea Inc believes that if it permanently increases its level of debt to 545 million, the risk of financial distress may cause it to receive less favourable terms from its suppliers. As a result, Grevillea inc's expected free cash flows with debt will be only $15 million per year. Suppose Grevillea Ine's tax rate is 35%, the risk free rate is 3 the market risk premium is 7%, and the beta of Grevillea Ine's free cash flows is 1.3 (with or without leverage) Grevillea Ine's value after it has increased its level of debt is closest to O A $220 million B. $185 milion OC. $140 million D. $152 million
