FIN620_Quiz HW 4

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Finance

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Apr 3, 2024

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Quiz HW 4 - Capital Structure and MM Question 1 1/ 1 point Boris Corporation is financed with 26 percent debt and the rest equity. It has a leveraged beta of 0.6 and is subject to a 30% corporate tax rate. What is Boris's unleveraged beta? Round the answer to two decimals. Answer: 048 v D View question 1 feedback Question 2 1/ 1 point The current value of a firm is $35,484 and it is 100% equity financed. The firm is considering restructuring so that it is 10% debt financed. If the firm's corporate tax rate is 20%, what will be the new value of the firm under the MM theory without taxes, transactions costs, or the possibility of bankruptcy? Round the answer to two decimals. Answer: 35,484.00 v D View question 2 feedback Question 3 1/ 1 point The current value of a firm is $216,641 and it is 100% equity financed. The firm is considering restructuring so that it is 33% debt financed. If the firm's corporate tax rate is 30%, what will be
the new value of the firm under the MM theory with corporate taxes but no possibility of bankruptcy. Round to answer to two decimals. Answer: 238,088.46 v D View question 3 feedback Question 4 1/ 1 poin The current value of a firm is $740,755 and it is 100% equity financed. The firm is considering restructuring so that it is 11% debt financed. If the firm's corporate tax rate is 20%, the typical personal tax rate of an investor in the firm's stock is 25%, and the typical tax rate for an investor in the firm's debt is 15%, what will be the new value of the firm under the MM theory with corporate taxes but no possibility of bankruptcy. Round the answer to two decimals. Answer: 764,720.60 v D> View question 4 feedback Question 5 1/ 1 poin A firm is considering two different financing capital structures (CS1 and CS2). In the first capital structure CS1 the firm will issue equity which will pay expected dividends of $2 million every year perpetually, and debt of maturity 10 years that will pay expected coupons of $3 million annually (6% of face value of $50 million). The equity is discounted at a rate of 9.40% annually, and the debt is discounted a rate of 6% annually. In the second capital structure the firm will issue equity which will pay expected dividends of $4 million every year perpetually, and debt of maturity 10 years that will pay coupons of $1 million annually (8% of face value of $12.5 million). The debt is discounted a rate of 8% annually. What is the rate of discount for equity in CS2? Assume that Modigliani-Miller and its assumptions are true. Round the answer to two decimals in percentage form. Please write % sign in the units box. Arermee
681 v % D View question 5 feedback Question 6 1/ 1 point A firm has 1,000,000 shares outstanding with a price per share of $23.51 (previous to any dividend payment). It decides to pay out cash dividend of $2,000,000. What will the share price be after the dividend has been paid? Assume that Modigliani-Miller and its assumptions are true. Answer: 2151 v D> View question 6 feedback Question 7 2/ 2 points A firm has 10,000,000 shares outstanding with a price per share of $24.90 (previous to "Rights Issue"). It does a "Rights Issue" where it offers 2,000,000 shares to existing shareholders at a price of $15.80. A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. https:/www.investopedia.com/investing/understanding-rights-issues/ The "Rights Issue" is fully subscribed, that is existing shareholders purchase all the shares offered. What will the share price be after the dividend has been paid? Round the answer to two decimals. Assume that Modigliani-Miller and its assumptions are true. Answer: 2338 v
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D> View question 7 feedback Question 8 2/ 2 points A firm has 10,000,000 shares outstanding with a price per share of $20.70 (previous to a share repurchase). The firm repurchases 2,000,000 shares with a price per share of $27.00. A share repurchase is a transaction whereby a company buys back its own shares from the marketplace. (As the repurchase price is greater than the market price, equity holders may sell shares to the firm only in proportion to their holding.) https:/www.investopedia.com/terms/s/sharerepurchase.asp What will the share price be after the share repurchase is completed? Assume that Modigliani-Miller and its assumptions are true. Round the answer to two decimals. Answer: 1918 v Attempt Score:10 / 10 - 100 % Overall Grade (highest attempt):10 / 10 - 100 %