Foundations of Finance (9th Edition) (Pearson Series in Finance)
Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
Question
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Chapter 1, Problem 6RQ

a.

Summary Introduction

To discuss: The primary characteristics of sole proprietorship.

b.

Summary Introduction

To discuss: The primary characteristics of partnership.

c.

Summary Introduction

To discuss: The primary characteristics of corporation.

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Morales Publishing's tax rate is 40%, its beta is 1.10, and it uses no debt. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk free rate is 5.0% and the market risk premium is 6.0%, by how much would the capital structure shift change the firm's cost of equity? Ο 1.53% Ο 2.05% Ο 1.70% Ο 1.87% O 2.26%
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Bailey and Sons has a levered beta of 1.10, its capital structure consists of 40% debt and 60% equity, and its tax rate is 40%. What would Bailey's beta be if it used no debt, i.e., what is its unlevered beta? a. 0.79 b. 0.71 c. 0.67 d. 0.64 e. 0.75
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