APU FINC600 Week 6 Quiz (2016) Perfect Answer

******** * of ** *** ** *******

*** main ********* ** debt ********* *** a **** ****

I) no *** registration is ******** *** **** issue

II) interest expense of * firm is *** ***********

**** ********* ***** **** higher ***** **** ******* firms

AI *****

*** only

**** *****

** *** *** *****

Question * of ** *** ** *******

** a **** *********** ******* $100 ******* ** ** interest rate ** ** **** is the ******* ***** ** *** ******** tax shield? ******* **** *** *** **** ** *****

***** ********

**** ********

C$30 ********

****** million

E **** ** the above

** ** ******** tax shield * (03)(100) * *** ********

******** * ** ** *** ** *******

In order to ********* *** *** shields ******** by **** *** tax rate **** is *****

* average ********* *** *****

* ******** ********* *** *****

C ******* ** ***************** tax ******

* ******* ** **************** tax ******

******** 4 ** ** 10/ 10 *******

*** ****** **** MM *********** * **** *** **** good ** *** presence ** ********* ***** ** because:

* ******* firms *** ***** ***** when ******** **** ********* unlevered ******

* *********** require higher rates of return ******** with *************

* ******** *** share *** ** ****** relevant with ******

* ********* are ** longer ******** **** taxes

******** * ** ** *** ** *******

******** **** ***** *** sold at * **** ***** the ******** from the tax ****** ** ** *****

* ******** of *** *****

* *********** ** *** firm

* ************ of the firm

* ******* of *** *****

******** * ** 15 *** 10 Points

The ******* ***** ****** ** capital structure predicts ******

* ** two firms *** ******* ********** *** **** rapidly ******* **** will borrow **** ***** ****** ******

* ***** prefer ****** to **** **********

* Risky ***** **** *** up ********* less

D ***** ***** **** *** ** ********* *****

******** * ** 15 *** ** *******

******* budgeting decisions that ******* both ********** *** ********* ********* *** ** analyzed by:

** ********* *** ******* ******

*** ********* *** discount *****

**** Ignoring financing ****

AI only

*** only

**** *****

** *** II *****

Question * ** 15 *** ** Points

*** ********* ******** ******* cost ** ******* ** ********** ****

* *********** *** weighted ******* ***** *** cost of **** ** the ******** ******* **** ** *******

* Adding *** ******** average before *** **** ** debt ** *** ******** average cost ** equity

* ****** the ******** ******* ***** *** **** ** debt ** *** ******** ******* **** of equity

D Dividing the ******** ******* before *** cost ** debt ** the weighted ******* **** ** *******

******** 9 ** 15 *** ** *******

** *********** the ******** ******* **** ** ******* the ****** **** *** * * *** * *****

* book *******

* liquidating values

C ****** *******

* **** of the above

Question 10 ** ** *** 10 Points

A firm *** * ***** market value ** *** ******* *** debt *** a ****** ***** ** $4 ******* **** ** *** ********* ******** average **** ** ******* ** *** ****** * *** **** of **** is *** the **** ** ****** ** *** *** *** *** **** is *****

*****

B116%

******

D **** ** the ***** ********

**** * ********* – **** * ******* = *****

******** ** ** ** *** ** *******

***** *** ********* **** *** ********

******* ***** taxes * $20 millions;

************ = $6 **********

******** ******* * $4 **********

Investment ** ***** ****** * *** millions;

********** ** working ******* = ** *********

Calculate the free **** **** ***** *** ********

*** millions

B$6 *********

**** *********

* **** of the ******

*** * ** * * – ** * * * *** *********

******** ** ** ** *** ** Points

******** *********** ratio of a **** can ********

** ********* ************

*** **** ** equity

**** **** of *****

*** effective tax rate

*** and *** *****

** only

** ** and III *****

** II *** and ***

Question 13 ** ** *** 10 *******

Floatation ***** *** incorporated into *** *** ********* ****

* Adding **** **** *** *** ****** ***** ** *** ********

* Subtracting them **** *** ****** value ** *** ********

* Incorporating **** **** *** WACC

* Disregarding them

******** 14 ** ** *** ** *******

********** ***** **** the ****** ****

A ********** the NPV ** *** **** ******* ******** the ****

* ********** *** *** ** *** loan ******* ******** the APV

* ********** *** *** ** *** **** ******* ********** the ****

* ********** *** NPV ** the **** ******* increasing the APV

Question ** ** ** 10/ ** Points

*** ****** ** **** useful ** ***********

* ***** ************* *********

* ******** projects

* ***** projects

D none ** the *****


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