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1. In the APV model
A) interest tax shields are discounted at i.
B) operating cash flows are discounted at Ku.
C) depreciation tax shields are discounted at i.
D) all of the above.
2. The firm's tax rate is 34%. The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%. Calculate the weighted average cost of capital.
A) 8.09%
B) 8.51%
C) 9.05%
D) 9.57%
E) 9.76%
3. Net sales volume variance will not be favorable:
When actual units sold is greater than budgeted sales volume
When actual units sold are less than budgeted sales volume
When the sales volume variance is favorable
Under any of the above conditions
If no interest payments are made, how much of the earnings are available to be distributed to the stockholders?
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F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but would like to add some debt to take advantage of low interest rates and the tax shield. Based on this information, what..
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