All securities are perpetuities and there is no growth

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Reference no: EM131520536

1. A firm has a value of $20,000,000 and EBIT of $3,000,000. Their tax rate is 30% The Value is made up of $5,000,000 of Debt and $15,000,000 of Market Cap. All securities are perpetuities and there is no growth. WACC is:

A. 21%

B. 14%

C. 10.5%

D. 15%

2. If a firm issues debt, uses the proceeds to repurchase equity, but does not replace old debt

A. all bondholders will receive the new interest rate

B. the company will pay more interest than if they replace the old debt

C. stock price will fall

D. it is possible for the value of the firm to fall but for stock price to rise

Reference no: EM131520536

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