2 What is the expected return on equity for a firm with a 14% expected return on assets that pays 9% on its debt, which totals 30% of assets? A 16.14% B 25.67% C 19.00% D. 17.00%

M12-20

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Calculate the cost of capital for a bond whose yield to maturity is 10% and the firm's tax rate of 34% a. 34% b. 10% c. 11% d. 6.6%

Question 1Firm A’s capital structure contains 20% debt and 80% equity. Firm B’s capital structurecontains 50% debt and 50% equity.Both firms pay 7% annual interest on their debt. Firm A’s shares have a beta of 1.0and Firm B’s beta of 1.375. The risk-free rate of interest equals 4%, and the expectedreturn on the market portfolio equals 12%. RequiredA. Calculate the WACC for each firm assuming there are no taxes.B. Recalculate the WACC figures assuming that the two firms face a marginaltax rate of 34%. What do you conclude about the impact of taxes from yourWACC calculations? C. Explain the simplifying assumptions managers make when using WACC asa project discounting method and discuss some of the common pitfallswhen using WACC in capital budgeting.

5. You are given the following information for company's Financial: Long-term debt outstanding: Current yield to maturity (r debt): Number of shares of common stock: Price per share: Book value per share: Expected rate of return on stock (requity): a) Computed company's cost of capital. Ignore taxes. $300,000 8% 10,000 $50 $25 15%

What is the debt ratio for a firm with an equity multiplier of 3.5? ____ 44.09 percent ____ 58.51 percent ____ 66.25 percent ____ 71.43 percent

What is the ROE for a firm with a times interest earned ratio of 2, a tax liability of $1 million, and interest expense of $1.68 million if equity equals $1.68 million? O 23.81% O 25.22% 33.60% 40 48% 21

Assume there are two firms with a MV of $50,000,000. Firm A consists of 10% debt and 90% equity. Firm B consists of 40% debt and 60% equity. Assume perfect capital markets and M&M Proposition 2 holds. Which firm will have a higher expected return for equity holders? Why? For the toolhar prace ALT+F10/PC or ALT+FN+F10 (Mac).

14 A.  Assume Skyler Industries has debt of $4,377,783with a cost of capital of 9.7% and equity of $5,791,640 with a cost of capital of 6%. What is Skyler’s total weighted average cost of capital? Round to the nearest hundredth, two decimal places and submit the answer in a percentage