gned to show that the speaker is confused. Buggins Inc. is financed equally by debt and equity, each with a market value of $1 million. The cost of debt is 5%, and the cost of equity is 10%. The company now makes a further $250,000 issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to 6% and the cost of equity to rise to 12%. Assume the firm pays no taxes. (LO16-1) a. How much debt does the company now have?

Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 6 percent return and can be financed at 3 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 14 percent return but would cost 16 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital b. Which project(s) should be accepted? O New machine. O Piece of equipment. %

Corporate Finance Company A and Company B’s revenues and variable expenses (e.g. COGS) are identical, butA’s fixed expenses (e.g. SG&A) are smaller than B’s (see table below). Assuming the size of theirrevenues are 100% correlated with the strength of the economy, would A’s equity Beta be smaller,the same, or larger than B’s equity beta? Explain why. Strength of economy:            Weak Economy                                Strong EconomyCompany                                       A    B                                                   A    BRevenues                                   150  150                                              180  180Variable Expenses                        20  20                                                 30   30Fixed Expenses                           20  100                                                20   100EBT                                             110  30                                                130   50

Roxy Broadcasting, Inc. is currently a low-levered firm with a debt-to-equity ratio of 2/7. The company wants to increase its leverage to 7/2 for debt to equity. If the current return on assets is 10% and the cost of debt is 8%, what are the current and the new costs of equity if Roxy operates in a world of no taxes?

An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 9.00 percent, and the cost of common equity (in the form of retained earnings) is 17.00 percent. b. Recalculate the firm's weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Debt Common equity Weighted average cost of capital Weighted Cost % 0.00 %