Exam 14: Capital Structure: Basic Concepts

After seeing Steve's analysis,Mike tells Steve that while his analysis looks good on paper,Steve will never be able to borrow at 8%,but would have to pay a more realistic rate of 12%.If Mike is right,what will Steve's payout be?

A firm has a debt-to-equity ratio of 1.Its cost of equity is 16%,and its cost of debt is 8%.If there are no taxes or other imperfections,what would be its cost of equity if the debt-to-equity ratio were 0?

The Backwoods Lumber Co.has a debt-equity ratio of .80.The firm's required return on assets is 12% and its cost of equity is 16.00%.What is the pre-tax cost of debt based on MM Proposition II with no taxes?

A firm should select the capital structure which:

The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called:

The firm's capital structure refers to:

In an EPS-EBI graphical relationship,the slope of the debt ray is steeper than the equity ray.The debt ray has a lower intercept because:

Based on MM with taxes and without taxes,how much time should a financial manager spend analyzing the capital structure of his firm?

The Nantucket Nugget is unlevered and is valued at $640,000.Nantucket is currently deciding whether including debt in its capital structure would increase its value.The current cost of equity is 12%.Under consideration is issuing $300,000 in new debt with an 8% interest rate.Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue.There are currently 32,000 shares outstanding and its effective marginal tax bracket is zero.What will Nantucket's new WACC be?

Hey Guys!,Inc.has debt with both a face and a market value of $3,000.This debt has a coupon rate of 7% and pays interest annually.The expected earnings before interest and taxes is $1,200,the tax rate is 34%,and the unlevered cost of capital is 12%.What is the firm's cost of equity?

A firm has a debt-to-equity ratio of 1.Its cost of equity is 16%,and its cost of debt is 8%.If the corporate tax rate is 25%,what would its cost of equity be if the debt-to-equity ratio were 0?

In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm this is known as:

Wild Flowers Express has a debt-equity ratio of .60.The pre-tax cost of debt is 9% while the unlevered cost of capital is 14%.What is the cost of equity if the tax rate is 34%?

A firm has a debt-to-equity ratio of 1.75.If it had no debt,its cost of equity would be 14%.Its cost of debt is 10%.What is its cost of equity if the corporate tax rate is 50%?

Walter's Distributors have a cost of equity of 13.84% and an unlevered cost of capital of 12%.The company has $5,000 in debt that is selling at par value.The levered value of the firm is $12,000 and the tax rate is 34%.What is the pre-tax cost of debt?

The proposition that the value of a levered firm is equal to the value of an unlevered firm is known as:

A firm has $60,000 of debt outstanding that is selling at par and has a coupon rate of 8%.The tax rate is 40%.What is the present value of the tax shield?

Your firm has a pre-tax cost of debt of 8% and an unlevered cost of capital of 13%.Your tax rate is 35% and your cost of equity is 15.26%.What is your debt-equity ratio?

The Spartan Co.has an unlevered cost of capital of 11%,a cost of debt of 8%,and a tax rate of 35%.What is the target debt-equity ratio if the targeted cost of equity is 12.5%?

MM Proposition II is the proposition that: