Exam 14: Capital Structure in a Perfect Market

Suppose you are a shareholder in Galt industries holding 600 shares,and you disagree with this decision to delever the firm.You can undo the effect of this decision by:

Following the borrowing of $12 million and subsequent share repurchase,the equity cost of capital for RC is closest to:

Which of the following statements is FALSE?

Use the information for the question(s)below. Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy,with each outcome being equally likely.The initial investment required for the project is $80,000,and the project's cost of capital is 15%.The risk-free interest rate is 5%. -The NPV for this project is closest to:

After the repurchase how many shares will Luther have outstanding?

At the conclusion of this transaction,the number of shares that d'Anconia Copper will have outstanding is closest to:

Use the information for the question(s)below. You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects: -The unlevered beta for Lincoln is closest to:

Suppose you own 10% of the equity of Without.What is another portfolio you could hold that would provide you with the same exact cash flows?

Suppose that to raise the funds for the initial investment the firm borrows $45,000 at the risk free rate and issues new equity to cover the remainder.In this situation,calculate the value of the firm's levered equity from the project.What is the cost of capital for the firm's levered equity?

Suppose you are a shareholder in Galt industries holding 100 shares,and you disagree with this decision to delever the firm.You can undo the effect of this decision by

Use the following information to answer the question(s)below. Nielson Motors is currently an all equity financed firm.It expects to generate EBIT of $20 million over the next year.Currently Nielson has 8 million shares outstanding and its stock is trading at $20.00 per share.Nielson is considering changing its capital structure by borrowing $50 million at an interest rate of 8% and using the proceeds to repurchase shares.Assume perfect capital markets. -Nielson's EPS if they choose not to change their capital structure is closest to:

Considering the fact that Luther's Cash is risk-free,Luther's unlevered beta is closest to:

Prior to any borrowing and share repurchase,the equity cost of capital for RC is closest to:

Which of the following statements is FALSE?

The beginning of the modern theory of finance was marked by:

Louie's Truck Repair has assets with a market value of $8000.The company has three types of securities: equity,$2500 of debt,and 100 warrants that are fairly priced at $20 each.What is the value of Louie's equity?

Which of the following statements is FALSE?

The market capitalization of d'Anconia Copper after this transaction takes place is closest to:

Suppose you own 10% of the equity of With.What is another portfolio you could hold that would provide you with the same exact cash flows?

Suppose you are a shareholder in d'Anconia Copper holding 300 shares,and you disagree with the decision to lever the firm.You can undo the effect of this decision by