If the after-tax cost of debt is less than the cost of equity in a fırm, which of the following relationships must be true? Assume this firm has no preferred stock. (Multiple Choice) WACC = After-Tax Cost of Debt < Cost of Equity After-Tax Cost of Debt < WACC < Cost of Equity After-Tax Cost of Debt < Cost of Equity < WACC After-Tax Cost of Debt < Cost of Equity = WACC WACC < After-Tax Cost of Debt < Cost of Equity

If the after-tax cost of debt is less than the cost of equity in a fırm, which of the following relationships must be true? Assume this firm has no preferred stock. (Multiple Choice) WACC = After-Tax Cost of Debt < Cost of Equity After-Tax Cost of Debt < WACC < Cost of Equity After-Tax Cost of Debt < Cost of Equity < WACC After-Tax Cost of Debt < Cost of Equity = WACC WACC < After-Tax Cost of Debt < Cost of Equity

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Discuss why evaluating vertical equity simply based on tax rate structure may be less than optimal.
Is there a readily recognisable debt-to-equity ratio that maximises a firm's value? What are your reasons for or against?
Which statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the above
which one is correct please confirm? Q24: In determining the cost of debt, several factors must be considered. All of the following are those factors EXCEPT ____. a. flotation costs b. the firm’s growth rate of dividends c. the firm’s before-tax cost of debt d. the firm’s tax rate
According to MM propositions, at what debt-equity ratio the cost of equity should be lowest? Zero if there is no tax and indefinitely large if a non-zero tax rate is applied. Infinitely large Zero if there is no tax and 1 if a non-zero tax rate is applied. Zero
Thinking about the definition of the term "flotation costs," should we expect the flotation costs for debt to be significantly lower than those for equity? Why or why not? how can the answer be supported.
While the use of debt can lower the average cost of capital, there is a point that the debt leverage gets high enough it increases the cost of capital. Group of answer choices True False
Ch. 17. True/False. The optimal amount of debt produces the highest weighted average cost of capital. Group of answer choices True False
Capital strucutre In this exaple i have done. Why does the cost of capital not change but the cost of equity has to change
What is WACC (select all that are true)? Group of answer choices Rd (1-Tc) * D/V + Re * E/V Weighted Average Cost of Capital For a firm overall, it is based on the riskiness of the firm's assets While it is generally estimated by looking at the right-hand-side of the balance sheet, it is largely driven by the left-hand-side (i.e., assets) It is the amount that equity holders demand for an investment in a firm It is the amount that debt holders demand for a loan made to the firm
Which of the following statements are true about the interest-burden ratio? Check all that apply: It can be expressed as EBIT/Interest Expense. If the company has no financial leverage, the interest-burden ratio will be equal to 0. A company with higher financial leverage will have a lower interest-burden ratio. If the company has no financial leverage, the interest-burden ratio will be equal to 1. It can be expressed as Net profits/Pretax profits.
The financial manager of a firm determines the following schedules of cost of debt and cost of equity for various combinations of debt financing: Debt/Assets After-Tax Cost of Debt Cost of Equity 0 % 4 % 8 % 10 4 8 20 4 8 30 5 9 40 6 10 50 8 12 60 10 14 70 12 16 Find the optimal capital structure (that is, optimal combination of debt and equity financing). Round your answers for the capital structure to the nearest whole number and for the cost of capital to one decimal place. The optimal capital structure: % debt and % equity with a cost of capital of % Why does the cost of capital initially decline as the firm substitutes debt for equity financing? The cost of capital initially declines because the firm cost of debt is than the cost of equity. Why will the cost of funds eventually rise as the firm becomes more financially leveraged? As the firm becomes more financially leveraged and riskier, the cost of…

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