Question
which of the following is NOT a financial friction that a perfect capital market is free of? ( Single Choice) Answer 1: transaction costs Answer
which of the following is NOT a financial friction that a perfect capital market is free of? ( Single Choice)
Answer 1: transaction costs
Answer 2: individuals are at a disadvantage in borrowing and lending relative to companies
Answer 3: insiders know more than outsiders
Answer 4: equity holders have different incentives with bond holders
Answer 5: cost of debt
in a perfect capital market, a 100% equity financed firm has an unlevered cost of equity of 10% and value of $10m. now it raises $5m debt and uses it to buy back shares from the market. if cost of debt is 5%, what is its new levered cost of equity? ( Single Choice)
Answer 1: 15%
Answer 2: 10%
Answer 3: 5%
Answer 4: 7.5%
in a perfect capital market, a 100% equity financed firm has an unlevered cost of equity of 10% and value of $10m. now it raises $5m debt and uses it to buy back shares from the market. if cost of debt is 5%, what is its new WACC? ( Single Choice)
Answer 1: 10%
Answer 2: 15%
Answer 3: 5%
Answer 4: 7.5%
a firm maintains a constant level of debt of $10m. If the tax rate is 40%, what is the additional firm valued added by the debt if cost of debt is 5%? ( Single Choice)
Answer 1: 4m
Answer 2: 0.5m
Answer 3: 0.2m
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