QUESTION 6

Given the following information:

The rate of return on assets (Ra)	.20
The cost of debt (i)	.07
The standard Deviation of Ra ()	.11
The Tax Rate (t)	.35

Calculate the coefficient of variation of the expected rate of return to equity and risk if leverage is 2.5.

		1.3636
		.41125
		.73333
		None of the answers are correct

20 points

QUESTION 7

Given the following information:

The rate of return on assets (Ra)	.20
The cost of debt (i)	.07
The standard Deviation of Ra ()	.11
The Tax Rate (t)	.35

Calculate the difference between the expected rate of return to equity if leverage increased from 1 to 2.5.

		.12675
		.2145
		.34124
		None of the answers are correct