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41.The beta of an all-equity firm 1.2. Suppose the firm

Question : 41.The beta of an all-equity firm 1.2. Suppose the firm : 1409509

 

41.The beta of an all-equity firm is 1.2. Suppose the firm changes its capital structure to 50% debt and 50% equity using 8% debt financing. What is the equity beta of the levered firm? The beta of debt is 0.2. (Assume no taxes.) 
 
 

A. 1.2

B. 2.2

C. 2.4

D. 1.7

42.The equity beta of a levered firm is 1.2. The beta of debt is 0.2. The firm's market value debt to equity ratio is 0.5. What is the asset beta if the tax rate is zero? 
 
 

A. 1.20

B. 0.73

C. 0.20

D. 0.87

1.2 = βA + (0.5)( βA - 0.2); 1.5βA = 1.3; βA = 1.3/1.5 = 0.87.

43.The asset beta of a levered firm is 1.1. The beta of debt is 0.3. If the debt equity ratio is 0.5, what is the equity beta? (Assume no taxes.) 
 
 

A. 1.5

B. 1.1

C. 0.3

D. 0.15

44.Generally, which of the following is true? 
 
 

A. rD>rA>rE

B. rE>rD>rA

C. rE>rA>rD

D. rA>rE>rD

45.Generally, which of the following is true? (b = beta) 
 
 

A. bD<bA<bE

B. bE<bA<bD

C. bA<bE<bD

D. bA<bD<bE

46.Generally, which of the following is true? 
 
 

A. rE<rD<rA

B. rD<rA<rE

C. rE<rA<rD

D. rD<rE<rA

47.Which of the following is true? 
 
 

A. bD>bA>bE

B. bE>bA>bD

C. bA>bE>bD

D. bA>bD>bE

48.The M&M Company is financed by $4 million (market value) in debt and $6 million (market value) in equity. The cost of debt is 5% and the cost of equity is 10%. Calculate the weighted average cost of capital. (Assume no taxes.) 
 
 

A. 10%

B. 15%

C. 8%

D. 7%

49.The M&M Company is financed by $10 million in debt (market value) and $40 million in equity (market value). The cost of debt is 10% and the cost of equity is 20%. Calculate the weighted average cost of capital assuming no taxes. 
 
 

A. 18%

B. 20%

C. 10%

D. 12%

50.If the debt beta is zero, then the relationship between the equity beta and the asset beta is given by: 
 
 

A. equity beta = 1 + [(beta of assets)/(debt-equity ratio)]

B. equity beta = (1 - debt-equity ratio)(beta of assets)

C. equity beta = (1 + debt-equity ratio)(beta of assets)

D. equity beta = 1 + (debt-equity ratio/ beta of assets)

 

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