Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1. What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a
1. What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? Ignore taxes. a) 54.0% b) 60.0% c) 66.7% d) 75.0% 2. A firm has perpetual debt of $10 million at an interest rate of 7%. What is the present value of the interest tax shield if the tax rate is 35%? a) $245,000 b) $700,000 c) $3,500,000 d) $10,000,000 3. What is the maximum rate that can be paid on debt and maintain a WACC of 14% with an expected return on equity of 19% in a firm with a debt-to- asset ratio of 60%? Ignore taxes. a) 6.50% b) 9.90% c) 10.67% d) 11.14% 4. A company's CFO wants to maintain a target debt-to-equity ratio of 1/4. If the WACC is 18.6%, and the pretax cost of debt is 9.4%, what is the cost of common equity assuming a tax rate of 34%? a) 19.90% b) 20.90% c) 21.70% d) 22.73%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started