A firm is currently all equity firm

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Reference no: EM131978794

1. A firm is currently an all equity firm. It is planning on borrowing $10,000 at an interst rate of 20% and using the proceeds to repurchase shares. The corporate tax rate is 35%. If the firm goes ahead with its plans, by how much will firm value increase by?

A) no change

B) $350

C) $700

D) $3,500

E) none of the above

2. A firm has $100 million in stock and $300 million in bonds. The firms borrwoing rate is 8% and the expected return on the stock is 20%. The corporate tax rate is 30%. What is the firms weighted average cost of capital?

A) 8%

B) 8.8%

C) 9.2%

D) 12%

E) 16%

F) 20%

Reference no: EM131978794

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