The advantages of long-term debt exclude

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Reference no: EM132030356

1. The advantages of long-term debt exclude:

decrease in financial risk

relatively low, explicit after-tax cost

owners are able to maintain control

increased earnings per share through using financial leverage

2. Yasemin Hilfiger has just issued a callable preferred stock that is callable in 6 years at $70 (redemption price). The stock is currently selling for $60 (issue price) but there will be $3 issuance costs per share. Everyone including the company and its investors are expecting that the stock will be called at that time. What is the after-tax cost of this preferred stock assuming it is called, if the stock pays $6 in dividends annually and the marginal tax rate is 40%?

13.24%

7.95%

12.96%

18.09%

3. The CAPM assumes that the only risk of concern to the investor is ____, which is measured by ____.

Unsystematic risk, beta

Systematic risk, the return to the market portfolio

Systematic risk, beta

Unsystematic risk, the return to the market portfolio

Reference no: EM132030356

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