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1. A firm has a debt-equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the firm’s cost of equity?
15.3%
18.2%
23.1%
21.7%
2. A company is an all-equity firm that has projected earnings before interest and taxes (EBIT) of $500,000 forever. The current cost of equity rs = 10% and the tax rate T = 30%. The company is in the process of issuing $1.5 million of bonds at par that carry a 6% annual coupon. What is the unlevered value of the firm (in millions)? (Note: You should use MM capital structure model with corporate taxes, but without personal taxes and bankruptcy costs. The formula for the value of unlevered firm: VU = EBIT x (1-T) / rs)._______
$2.05 million
$2.23 million
$2.86 million
$3.50 million
3. According to the information from Question 9, what is the levered value of the firm (in millions)? (Note: The value of levered firm VL = VU + Present value of annual interest tax shield)_______
$3.95 million
$3.76 million
$3.22 million
$2.96 million
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A company had beginning inventories as follows: Direct Materials, $900; Work-in-Process, $1,100; Finished Goods, $1,900. It had ending inventories as follows: Direct Materials, $1,000; Work-in-Process, $1,200; Finished Goods, $2,000. Material Purchas..
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