True regarding observed capital structures

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1. Which of the following is (are) true regarding observed capital structures?

I. Drug companies appear to use less debt than electric utility companies do.

II. It appears that many firms choose to pay substantial taxes rather than increase debt to further benefit from the interest tax shield.

III. It appears that, for whatever reason, capital structures vary quite a bit across industry groups.

2. Pick a specific industry and post your explanation of the cash conversion cycle in that industry. Identify an example of how it could be shortened

3. A firm with no debt has 200,000 shares outstanding valued at $20 each. Its cost of equity is 12 percent. The firm is considering adding $1,000,000 in debt to its capital structure. The coupon rate would be 8 percent and the firm's tax rate is 34 percent. What would the firm be worth after adding the debt?

A. $4.033 million

B. $4.180 million

C. $4.340 million

D. $4.660 million

E. $5.000 million

Reference no: EM132061171

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