Question
QUESTION 27 A firm has a market value of equity of $30,000. It borrows $30,000 at 5%. If the return on equity is 20% and
QUESTION 27
A firm has a market value of equity of $30,000. It borrows $30,000 at 5%. If the return on equity is 20% and the tax rate is 40%, what is the firms WACC?
| A. | 11.5% | |
| B. | 12.5% | |
| C. | 8.3% | |
| D. | 18.4% |
QUESTION 28
[Q29-Q33] Assume the M&M with corporate taxes. The corporate tax rate is 40%. Your firm is currently unlevered with 100% equity. As of now, the value of the firms equity is $400K, and the firms cost of capital is 10%. Assume that your firm can borrow at 4% from a bank. Suppose that you decided to lever up by reducing equity and increasing debt. As the result, your firm now has $250K in debt. Your firm plans to maintain this debt amount forever. What is the present value of the interest tax shield?
| A. | $40K | |
| B. | $100K | |
| C. | $160K | |
| D. | $80K |
QUESTION 29
What is the value of the firm under the new capital structure? (Hint: Use the first M&M proposition with corporate taxes.)
| A. | $100K | |
| B. | $500K | |
| C. | $250K | |
| D. | $400K |
QUESTION 30
What is the market value of equity under the new capital structure? (Hint: Use the balance sheet identity.)
| A. | $100K | |
| B. | $400K | |
| C. | $250K | |
| D. | $500K |
QUESTION 31
What is the cost of equity under the new capital structure? (Hint: Use the second M&M proposition with corporate taxes.)
| A. | 8% | |
| B. | 13.6% | |
| C. | 4% | |
| D. | 10% |
QUESTION 32
What is the WACC under the new capital structure?
| A. | 8% | |
| B. | 10% | |
| C. | 13.6% | |
| D. | 4% |
QUESTION 33
The tradeoff theory suggests that with higher costs of financial distress, it is optimal for a firm to choose lower leverage.
True
False
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Fanatical Prospecting The Ultimate Guide To Opening Sales Conversations And Filling The Pipeline By Leveraging Social Selling Telephone Email Text And Cold Calling
Authors: Jeb Blount, Mike Weinberg
1st Edition
1119144752, 978-1119144755
