TO UCCITT TURTO TITUCU acorrect Question 1 0.67 / 2 pts Check all that apply. Which of the following is/are reason(s) why Susan Collins had chosen to keep CPK debt-free prior to July/August 2007? Taking on debt would not have generated tax shields. Taking on debt would have resulted in CPK incurring significant agency costs of debt. Taking on debt would have resulted in incurring significant agency costs of Taking on debt would have resulted in CPK incurring significant financi selected this answer. costs. Taking on debt would have resulted in CPK losing its debt capacity. Taking on debt would have decreased the NPV of CPK's potential future Taking on debt would have resulted in CPK incurring significant agency costs of debt. Taking on debt would have resulted in CPK incurring significant financial distress costs. Taking on debt would have resulted in CPK losing its debt capacity. Taking on debt would have decreased the NPV of CPK's potential future investments. (dollars in thousands, except Snare data, ligures based on end of June 2007) Debt/Total Capital 10% 20% Actual 30% (1) 6.16% Interest rate Tax rate 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% 32.5% 30,054 0 Earnings before income taxes and interest (2) Interest expense Earnings before taxes Income taxes 30,054 9,755 30,054 1,391 28,663 9,303 19,359 30,054 2,783 27,271 8,852 18,419 30,054 4,174 25,880 8,400 17,480 Net income 20,299 Book value: Debt Equity Total capital 225,888 225,888 22,589 203,299 225,888 45,178 180,710 225,888 67,766 158,122 225,888 Market value: 0 67,766 Debt(3) Equity(4) 643,773 643,773 22,589 628,516 651,105 45,178 613,259 658,437 598,002 665,769 Market value of capital Notes: (1) Interest rate of CPK's credit facility with Bank of America: LIBOR + 0.80%. 2) Earnings before interest and taxes (EBIT) include interest income. ) Market values of debt equal book values. Actual market value of equity equals the share price ($22.10) multiplied by the current number of shares outstanding (29.13 million). (4)