Costs associated with the requirement that management divert

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Reference no: EM131562760

Bike Inc.’s capital structure contains 20 percent debt and 80 percent equity and the company pays 7 percent annual interest on its debt. Bike Inc.’s stock has a beta of 1.0. Further, assume that the risk-free rate of interest equals 4 percent, and the expected return on the market portfolio equals 12 percent. The WACC for Bike Inc. will be _______ in the absence of taxes and will be ________ in the presence of a corporate marginal tax rate of 34%.

a. 11%; 10.52% b. 13%; 12.31% c. 9%; 8.25%

Costs associated with the requirement that management divert its attention away from strategically managing a corporation in favor of spending time with financial attorneys could be best described as

a. direct bankruptcy costs. b. indirect bankruptcy costs. c. mangerial-shareholder related agency costs. d. none of the above.

Reference no: EM131562760

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