Questions 1 points Save Arower In mid-2015, Wondafone had $10 billion in debt, total equity capitalization of $99 billion, and an equity beta of 1.5. Wondafone has $20 billion in cash and risk-free securities in its assets. Assume that the risk free rate of interest is 3 and the market risk premium is 4% What is the beta of Wondafone's business assets assuming perfect capital markets and a high credit rating for the firm? OA 1.5 OB. 167 COS 0.1.36 Question 6 1 points Save Answer You operate in a perfect capital market in which firms and individuals can borrow or lend as much as they like at 8 p.a. You have currently invested in XYZ Ltd which is unlevered and generates a return of 14% p.a. on average. If XYZ restructured to a 50/50 mix of debt/equity, what return on their investment would equity holders require to invest? A. The return on equity will be unchanged because the amount of debt raised is insufficient to substantially increase the risk of financial distress. B. The return on equity will increase to 20% C. The return on equity is 8% D. The return on equity wil be 11% since hall the firm is financed by equity (which costs 14%) and half is financed by debt which costs 8%) Question 7 1 points Save Arome Indell stock has a current market value of $150 million and a beta of 0.80. Indell currently has risk-free debt as well. The firm decides to change its capital structure by issuing $39 million in additional risk-free debt, and then using this $39 million plus another $11 million in cash to repurchase stock. With perfect capital markets, what will be the beta of Indell stock after this transaction? A 0.47 B. 1.20 OC 1.05 6.0.53 Question 8 1 points Save Answer Consider the following income statement for Aldi-Woolworths Inc. (all figures in Millions Year 2014 2015 2016 Total Sales 60,553 53.791 Cost of goods sold 45,565 42,140 39,637 Selling General & Admin expenses 11.688 12, 191 11,575 Depreciation 1.265 1,256 1,209 Operating Income 2,035 847 Other income 0 0 EBIT 2,035 847 1,370 510 557 604 Interest expense Earnings before tax 1.525 760 Taxes 514 102 Net Income 991 189 The interest rate tax shield for Aldi-Woolworths Inc. in 2015 is closest to 11,688 12,191 11,575 Selling General & Admin expenses Depreciation Operating Income 1.265 1,256 1,209 2,035 847 1,370 Other Income 0 0 EBIT 2,035 847 1,370 510 557 604 Interest expense Earnings before tax 1.525 290 534 102 268 Net Income 991 189 498 The interest rate tax shield for Aldi-Woolworths inc. In 2015 is closest to A 1212 milion B5102 milion C. 5604 milion D. $195 milion Questions 1 points Save Arower In mid-2015, Wondafone had $10 billion in debt, total equity capitalization of $99 billion, and an equity beta of 1.5. Wondafone has $20 billion in cash and risk-free securities in its assets. Assume that the risk free rate of interest is 3 and the market risk premium is 4% What is the beta of Wondafone's business assets assuming perfect capital markets and a high credit rating for the firm? OA 1.5 OB. 167 COS 0.1.36 Question 6 1 points Save Answer You operate in a perfect capital market in which firms and individuals can borrow or lend as much as they like at 8 p.a. You have currently invested in XYZ Ltd which is unlevered and generates a return of 14% p.a. on average. If XYZ restructured to a 50/50 mix of debt/equity, what return on their investment would equity holders require to invest? A. The return on equity will be unchanged because the amount of debt raised is insufficient to substantially increase the risk of financial distress. B. The return on equity will increase to 20% C. The return on equity is 8% D. The return on equity wil be 11% since hall the firm is financed by equity (which costs 14%) and half is financed by debt which costs 8%) Question 7 1 points Save Arome Indell stock has a current market value of $150 million and a beta of 0.80. Indell currently has risk-free debt as well. The firm decides to change its capital structure by issuing $39 million in additional risk-free debt, and then using this $39 million plus another $11 million in cash to repurchase stock. With perfect capital markets, what will be the beta of Indell stock after this transaction? A 0.47 B. 1.20 OC 1.05 6.0.53 Question 8 1 points Save Answer Consider the following income statement for Aldi-Woolworths Inc. (all figures in Millions Year 2014 2015 2016 Total Sales 60,553 53.791 Cost of goods sold 45,565 42,140 39,637 Selling General & Admin expenses 11.688 12, 191 11,575 Depreciation 1.265 1,256 1,209 Operating Income 2,035 847 Other income 0 0 EBIT 2,035 847 1,370 510 557 604 Interest expense Earnings before tax 1.525 760 Taxes 514 102 Net Income 991 189 The interest rate tax shield for Aldi-Woolworths Inc. in 2015 is closest to 11,688 12,191 11,575 Selling General & Admin expenses Depreciation Operating Income 1.265 1,256 1,209 2,035 847 1,370 Other Income 0 0 EBIT 2,035 847 1,370 510 557 604 Interest expense Earnings before tax 1.525 290 534 102 268 Net Income 991 189 498 The interest rate tax shield for Aldi-Woolworths inc. In 2015 is closest to A 1212 milion B5102 milion C. 5604 milion D. $195 milion