The net effect is that the firms wacc is unchanged

Assignment Help Financial Management
Reference no: EM131513259

1. As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.

True

False

2. The interest paid by a firm is tax-deductible and is referred to as interest tax shield. This is the additional amount that a firm would have paid in taxes if it did not have any debt in its capital structure.

True

False

3. In a world with taxes, interest tax shield tends to reduce a firm's weighted average cost of capital.

True

False

Reference no: EM131513259

Questions Cloud

Calculate the stocks coefficient of variation : Calculate the stock's standard deviation. Calculate the stock's coefficient of variation.
Determine the combined present value : Determine the combined present value as of December 31, 2016, of the following four payments to be received at the end of each of the designated years,
What will be the common stocks value : If the firm's risk increases, causing the required return to rise to10%, what will be the common stocks value?
Preparing a contract to lease a machine : Your client, Keith Wildhorse Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 28 years.
The net effect is that the firms wacc is unchanged : As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.
Engage in that topics quantitative analysis method : hese case studies are designed to provide an opportunity to engage in that topic's quantitative analysis method,
Securities does not change the cash flows generated : As long as a firm’s choice of securities (debt vs equity) does not change the cash flows generated by its assets,
What is the equilibrium expected growth rate : What is the equilibrium expected growth rate?
What is the price of the stock five years from now : O'Leary Corporation's last dividend paid was $1.50. What is the price of the stock 5 years from now?

Reviews

Write a Review

Financial Management Questions & Answers

  Compute the anticipated value of the dividends

Beasley Ball Bearings paid a dividend of $4 last year. The dividend is expected to grow at a constant rate of 6 percent over the next five years. The required rate of return is 15 percent (this will also serve as the discount rate in this problem). U..

  Reinvesting the coupon payments

You bought EMU bond:  5-year, coupon= 12%,  paid semi-annually, par= $1,000, and YTM = 8%. You sold the bond at the end of 4-years.  You have also been reinvesting the coupon payments all along at the same 8% YTM rate. What is your wealth at the end ..

  Carlsbad corporations sales are expected to increase

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $5 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales.

  Dollar-weighted return is equal to the time-weighted return

On 1/1/14 I invested $30,000. On 6/1/15, my fund is worth $32,000, and I deposit/withdraw M dollars. On 12/31/15, my fund is worth $30,000. The dollar-weighted return is equal to the time-weighted return in 2015. Calculate the value of M and M is not..

  Features of corporate bond affect its yield

How do the following features of a corporate bond affect its yield: call option, convertibility, collateralization, sinking fund, and senior status. Why are the GSEs said to be characterized by moral hazard? Any evidence that this is a serious proble..

  Load balancing refers to the process of loading data

"Load balancing" refers to the process of loading data in a sequential fashion during an ETL process. In a three tier ERP environment, there is typically an application, database and a client (or browser) running. A program that aids communication be..

  Remaining to maturity and current yield to maturity

Calculate the current price of a $5,000 par value bond that has a coupon rate of 17 percent, pays coupon interest quarterly (i.e., 4 times per year), has 29 years remaining to maturity, and has a current yield to maturity (discount rate) of 9 percent

  What is the embedded interest rate offered by the bank

A bank offers an investment opportunity, which requires you to invest 10,000 today and the bank promises to return 15,000 in 10 years. What is the embedded interest rate offered by the bank?

  What depreciation will be shown in the income statement

An organisation buys a tangible non-current asset for £200,000. It has an estimated scrap value of £20,000 and an expected useful economic life of 10 years. What depreciation will be shown in the income statement for year 3? How would the non-current..

  Expected rate of return and holding period yield

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). Suppose that today you buy a bond wit..

  Calculate the mean adjusted abnormal return

Which of the following are inconsistent with the semi-strong form of the efficient market hypothesis?  Suppose a security's mean return is 1.50%. On a particular day, the return on the market is 1.20% while the return on the security is 1.85%. Calcul..

  Consider a perpetuity-due with first payment

Consider a perpetuity-due with a first payment of 5000 at time 0 and each subsequent payment decreases by 9%. Find the PV of this perpetuity at time 0 given an annual effective rate of interest i=2%.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd