For each of the following events, state the effect on the market value of the firm?s levered assets (), cost of debt , cost of equity , weighted average cost of capital after tax, weighted average cost of capital before tax, and market value of levered equity ().

Important assumptions:?The risky firm's levered assets currently have the same systematic risk as the market portfolio, all events happen in isolation and are a surprise, and all transactions are done at a fair price. Assume a corporate tax rate of 30%, but there are no transaction costs, no asymmetric information (so ignore signalling effects), and no change in the credit risk of the firm's debt.

Options: Increase, Decrease or Unchanged

?

Issues shares and uses the proceeds to invest in a positive NPV project with a higher systematic risk than the firm's usual investments Issues fixed-coupon bonds and uses the proceeds to repurchase shares. The corporate tax rate suddenly increases by a material amount Conducts a 3-for-1 rights issue at a significant discount to the current market share price Invests in a lower than average risk project with a positive NPV, funded half with a bank loan and half with a share issue. Unexpectedly generates larger than usual cash flows and uses those cash flows to repay debt. Conducts a 2 for 1 share split Firm value V + Cost of debt O O " " + + Weighted average cost of capital (after tax) + + + 4 + + Weighted Market Value of average cost of Firm's Equity (E) capital (before tax) + + 4 + + + 47 + + +