Exam 13: Leverage and Capital Structure

The Tree House has a pretax cost of debt of 7.3 percent and a return on assets of 12.8 percent.The debt-equity ratio is .46.Ignore taxes.What is the cost of equity?

Greenwood Motels has filed a petition for bankruptcy but hopes to continue its operations both during and after the bankruptcy process.Which one of the following terms best applies to this situation?

Weston Mines has a cost of equity of 14.9 percent,a pretax cost of debt of 7.3 percent,and a return on assets of 12.6 percent.Ignore taxes.What is the debt-equity ratio?

In the process of liquidation,some types of claims receive preference over other claims.Which one of the following determines which type of claim is paid first?

Which one of the following is the equity risk arising from the daily operations of a firm?

Northwestern Lumber Products currently has 12,400 shares of stock outstanding and no debt.Patricia,the financial manager,is considering issuing $160,000 of debt at an interest rate of 6.95 percent and using the proceeds to repurchase shares.Given this,how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $48,000? Ignore taxes.

Gulf Shores Inn is comparing two separate capital structures.The first structure consists of 64,000 shares of stock and no debt.The second structure consists of 50,000 shares of stock and $1.01 million of debt.What is the price per share of equity?

Which one of the following represents the present value of the interest tax shield?

Which one of the following statements related to the static theory of capital structure is correct?