Davenport FINC620 final exam 2016

Jun 25th, 2016
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Question Save All Answers Save and Submit Question 1 The interest tax shield is a key reason why: A. the required rate of return on assets rises when debt is added to the capital structure. B. the value of an unlevered firm is equal to the value of a levered firm. C. the net cost of debt to a firm is generally less than the cost of equity. D. the cost of debt is equal to the cost of equity for a levered firm. E. firms prefer equity financing over debt financing. 4 points Save Answer Question 2 Rosita's has a cost of equity of 13.8% and a pre-tax cost of debt of 8.5%. The debt-equity ratio is .60 and the tax rate is .34. What is Rosita's unlevered cost of capital? A. 8.83% B. 12.30% C. 13.97% D. 14.08% E. 14.60% 4 points Save Answer 138 = RU + (RU - .085) × .60 × (1 − .34); .17166 = 1.396RU; RU = .12297 = 12.30 % Question 3 Juanita's Steak House has $12,000 of debt outstanding that is selling at par and has a coupon rate of 8%. The tax rate is 34%. What is the presen

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Davenport FINC620 final exam 2016Report this Question as InappropriateQuestionSave All Answers Save and SubmitQuestion 1The interest tax shield is a key reason why:A. the required rate of return on assets rises when debt is added to the capital structure.B. the value of an unlevered firm is equal to the value of a levered firm.C. the net cost of debt to a firm is generally less than the cost of equity.D. the cost of debt is equal to the cost of equity for a levered firm.E. firms prefer equity financing over debt financing.4 pointsSave AnswerQuestion 2Rosita's has a cost of equity of 13.8% and a pre-tax cost of debt of 8.5%. The debt-equity ratio is.60 and the tax rate is .34. What is Rosita's unlevered cost of capital?A. 8.83%B. 12.30%C. 13.97%D. 14.08%E. 14.60%4 points Save Answer138 = RU + (RU - .085) .60 (1 .34); .17166 = 1.396RU; RU = .12297 = 12.30 %Question 3Juanita's Steak House has $12,000 of debt outstanding that is selling at par and has a coupon rateof 8%. The tax rate is 34%. What is the present value of the tax shield?A. $2,823B. $2,887C. $4,080D. $4,500E. $4,6334 points Save AnswerPresent value of the tax shield = .34$12,000 = $4,080Question 4The Backwoods Lumber Co. has a debt-equity ratio of .80. The firm's required return on assets is12% and its cost of equity is 15.68%. What is the pre-tax cost of debt based on MM PropositionII with no taxes?A. 6.76%B. 7.00%C. 7.25%D. 7.40%E. 7.50%4 points Save Answer

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