Federal reserve tightens credit and firm uses more debt

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How would each of the following scenarios affect a firm's cost of debt Rd(1-T), its cost of equity, Rs, and its WACC? Indicate with a plus(+), a minus (-) or a zero (0) if the factor would raise, would lower or would have an undeterminable effect on the item in question. Assume for each answer that other things are held constant even though in some instances there may be no correct answer. a. The corporate tax rate is lowered. b. The Federal Reserve tightens credit. c. The firm uses more debt; that is, it increases its debt/assets ratio. d. The dividend payout ratio is increased. e. The firm doubles the amount of capital it raises during the year. f. The firm expands into a risky new rate. g. The firm merges with another firm whose earnings are countercyclical both to those of the first firm and to the stock market. h. The stock market falls drastically, and the firm’s stock price falls along with the rest. i. Investors become more risk averse. j. The firm is an electric utility with large investments in nuclear plants. Several states are considering a ban on nuclear power generations.

Reference no: EM13724258

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