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verified
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A) WACC remains constant because of the final target debt ratio desired.
B) flotation costs must be added to the total UCF.
C) WACC must be recalculated as the debt is repaid and the cost of capital changes.
D) tax shields of debt are not available because the corporation is no longer publicly traded.
E) None of the above.
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A) firms rejecting positive NPV, all equity projects because changing to a capital structure with debt will always create negative NPV.
B) never considering capital budgeting projects on their own merits.
C) corporate financial managers first checking with their investment bankers to determine the best type of capital to raise before valuing the project.
D) firms accepting some negative NPV all equity projects because changing the capital structure adds enough positive leverage tax shield value to create a positive NPV.
E) firms never changing the capital structure because all capital budgeting decisions will be subsumed by capital structure decisions.
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A) unlevered cash flows and interest tax shields during the debt paydown period, unlevered terminal value, and asset sales.
B) unlevered cash flows and interest tax shields during the debt paydown period, unlevered terminal value and interest tax shields after the paydown period.
C) levered cash flows and interest tax shields during the debt paydown period, levered terminal value and interest tax shields after the paydown period.
D) levered cash flows and interest tax shields during the debt paydown period, unlevered terminal value and interest tax shields after the paydown period.
E) asset sales, unlevered cash flows during the paydown period, interest tax shields and unlevered terminal value.
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A) 7.97%
B) 8.96%
C) 16.97%
D) 17.96%
E) 26.96%
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A) 0.08%
B) 3.06%
C) 14.0%
D) 16.97%
E) None of the above.
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verified
A) how the unlevered cash flows are calculated.
B) how the ratio of equity to debt is determined.
C) how the initial investment is treated.
D) whether terminal values are included or not.
E) how debt effects are considered;
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A) $850,000
B) $1,200,000
C) $1,300,000
D) $1,650,000
E) There is no value to the scheme; Albanic is just conning Telescoping Tube into moving.
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A) tax subsidy to debt.
B) interest subsidy.
C) flotation costs.
D) All of the above.
E) Both A and C.
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verified
A) 1.00
B) 1.11
C) 1.20
D) 1.34
E) It is impossible to determine with the information given.
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verified
A) tax subsidy of dividends, cost of issuing new securities, subsidy of financial distress and cost of debt financing.
B) cost of issuing new securities, cost of financial distress, tax subsidy of debt and other subsidies to debt financing.
C) cost of issuing new securities, cost of financial distress, tax subsidy of dividends and cost of debt financing.
D) subsidy of financial distress, tax subsidy of debt, cost of other debt financing and cost of issuing new securities.
E) None of the above.
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A) 5%
B) 6%
C) 11%
D) 15%
E) It is impossible to tell without the expected market return.
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verified
A) multiplying the weighted average after tax cost of debt by the weighted average cost of equity.
B) adding the weighted average before tax cost of debt to the weighted average cost of equity.
C) adding the weighted average after tax cost of debt to the weighted average cost of equity.
D) dividing the weighted average before tax cost of debt by the weighted average cost of equity.
E) dividing the weighted average after tax cost of debt by the weighted average cost of equity.
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A) adding them into the all equity value of the project.
B) subtracting them from the all equity value of the project.
C) incorporating them into the WACC.
D) disregarding them.
E) None of the above.
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verified
A) project's level of debt is known over the life of the project.
B) project's target debt to value ratio is constant over the life of the project.
C) project's debt financing is unknown over the life of the project.
D) Both A and B.
E) Both B and C.
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A) applied present value.
B) all purpose variable.
C) accepted project verified.
D) adjusted present value.
E) applied projected value.
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