Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Textbook Question
Chapter 9, Problem 13SP
- a. Rework Problem 9-12 as follows: Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm’s after-tax cost of capital?
- b. Why is there a change?
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Which of the following statements is most correct? (Hint: Work Problem 4-16 before answering 4-17, and consider the solution setup for 4-16, as you think about 4-17.)
a. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will raise the firm'
expected return on common equity (ROE).
b. The higher its tax rate, the lower a firm's BEP ratio will be, other things held constant.
c. The higher the interest rate on its debt, the lower a firm's BEP ratio will be, other things held constant.
d. The higher its debt ratio, the lower a firm's BEP ratio will be, other things held constant.
e. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will decrease the
firm's expected return on common equity (ROE).
8. The company’s cost of capital is also known as
A. hurdle rate
B. leverage rate
C. return rate
D. coupon rate
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Please explain step by step without table and graph thankyou
You have calculated the WACC for a Company and noticed that it is too high. To reduce it, you could: 1.Increase the tax rate
2.Increase the Equity weighting in the WACC calculation
3.Decrease the Risk-Free rate
4.Increase the Equity Risk Premium
5.Decrease the Perpetuity Growth Rate
1 and 2
1 and 3
2 and 3
2, 3 and 4
1, 2, and 5
Chapter 9 Solutions
Foundations Of Finance
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
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- In a few sentences, answer the following question as completely as you can. Why should financial decision makers obtain a good estimate of a firm’s cost of capital? What are the consequences of using a discount rate that is higher or lower than a firm’s true required return?arrow_forwardCalculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC). What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think Computron’s growth added value?arrow_forwardWhich investment criteria answers the question: "How quickly do we recover our investment, in nominal dollars?" A) net present value B) internal rate of return C) profitability index D) payback periodarrow_forward
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