Q8a

Which one of the following statements is correct?

 

 

To maximize the value of a firm you need to maximize the firm’s WACC.

 

 

A Chapter 7 bankruptcy is a legal process for reorganizing a firm.

 

 

Investors can use homemade leverage to offset firm leverage.

 

 

To maximize the value of a firm you need to borrow as much as you can.

 

2.     A firm has 100,000 shares of stock outstanding. The firm is considering borrowing $1.3 million at 7.5% interest and using the loan proceeds to repurchase 25,000 shares of stock. What is the value of the firm? Ignore taxes.

 

 

$5.20 million

 

 

$5.98 million

 

 

$6.50 million

 

 

$7.25 million

 

3.     A firm has a debt-equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the firm’s cost of equity?

 

 

15.3%

 

 

18.2%

 

 

23.1%

 

 

21.7%

 

4.     A company is an all-equity firm that has projected earnings before interest and taxes (EBIT) of $500,000 forever. The current cost of equity is 15% and the tax rate is 33%. The company is in the process of issuing $1.5 million of bonds at par that carry a 6% annual coupon. What is the unlevered value of the firm (in millions)? (Note: You should use MM capital structure model with corporate taxes, but without personal taxes and bankruptcy costs.)

 

 

$2.05 million

 

 

$2.23 Million

 

 

$2.56 Million

 

 

$2.85 Million

 

5.     From Question 4, what is the levered value of the firm (in millions)?_______

 

 

 

$2.05 million

 

 

$2.36 million

 

 

$2.56 million

 

 

$2.73 million

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Q8a

Which one of the following statements is correct?

 

 

To maximize the value of a firm you need to maximize the firm’s WACC.

 

 

A Chapter 7 bankruptcy is a legal process for reorganizing a firm.

 

 

Investors can use homemade leverage to offset firm leverage.

 

 

To maximize the value of a firm you need to borrow as much as you can.

 

2.     A firm has 100,000 shares of stock outstanding. The firm is considering borrowing $1.3 million at 7.5% interest and using the loan proceeds to repurchase 25,000 shares of stock. What is the value of the firm? Ignore taxes.

 

 

$5.20 million

 

 

$5.98 million

 

 

$6.50 million

 

 

$7.25 million

 

3.     A firm has a debt-equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the firm’s cost of equity?

 

 

15.3%

 

 

18.2%

 

 

23.1%

 

 

21.7%

 

4.     A company is an all-equity firm that has projected earnings before interest and taxes (EBIT) of $500,000 forever. The current cost of equity is 15% and the tax rate is 33%. The company is in the process of issuing $1.5 million of bonds at par that carry a 6% annual coupon. What is the unlevered value of the firm (in millions)? (Note: You should use MM capital structure model with corporate taxes, but without personal taxes and bankruptcy costs.)

 

 

$2.05 million

 

 

$2.23 Million

 

 

$2.56 Million

 

 

$2.85 Million

 

5.     From Question 4, what is the levered value of the firm (in millions)?_______

 

 

 

$2.05 million

 

 

$2.36 million

 

 

$2.56 million

 

 

$2.73 million

Just in case you need an assignment done, hire us. Using our writing services will make your life easier because we deliver exceptional results. Use us to get an A!

We are the Best!

course-preview

275 words per page

You essay will be 275 words per page. Tell your writer how many words you need, or the pages.


12 pt Times New Roman

Unless otherwise stated, we use 12pt Arial/Times New Roman as the font for your paper.


Double line spacing

Your essay will have double spaced text. View our sample essays.


Any citation style

APA, MLA, Chicago/Turabian, Harvard, our writers are experts at formatting.


We Accept

Secure Payment
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