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51.Minimizing the weighted average cost of capital (WACC) the same

Question : 51.Minimizing the weighted average cost of capital (WACC) the same : 1409510

 

51.Minimizing the weighted average cost of capital (WACC) is the same as maximizing the: 
 
 

A. market value of the firm.

B. bookvalue of the firm.

C. profits of the firm.

D. liquidating value of the firm.

52.The after-tax weighted average cost of capital (WACC) is given by (corporate tax rate = TC): 
 
 

A. WACC = (rD)(D/V) + (rE)(E/V)

B. WACC = (rD)(D/V) +[(rE )(E/V)/(1 - TC)]

C. WACC = [(rD)(D/V) + (rE)(E/V)]/(1 - TC)

D. WACC = (rD)(1 - TC)(D/V) + (rE)(E/V)

53.Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) = $300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC): 
 
 

A. 10.50%

B. 15.00%

C. 10.05%

D. 9.45%

54.According to the graph of WACC for Union Pacific, which of the following is (are) true?

I) The cost of equity is an increasing function of the debt-equity ratio.
II) The cost of debt is an increasing function of the debt-equity ratio.
III) The weighted average cost of capital (WACC) is a decreasing function of the debt-equity ratio. 
 
 

A. I only

B. I and II only

C. III only

D. I, II, and III

55.A firm's return on assets is 12% and the cost of the firm's debt is 7%. Given a 0.7 debt to equity ratio, what is the levered cost of equity? 
 
 

A. 7.0%

B. 12.0%

C. 13.6%

D. 15.5%

56.A firm's equity beta is 1.2 and its debt is risk free. Given a 0.7 debt to equity ratio, what is the firm's asset beta? (Assume no taxes.) 
 
 

A. 0.7

B. 1.0

C. 1.2

D. 0.0

1.2 = BA + 0.7 × (BA - 0); 1.2 = 1.7BA; BA = (1.2/1.7) = 0.706.

 

 

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