29 Jun Question Question 1.1.Equity in a firm with debt is ca
QuestQuestion
Question 1.1.Equity in a firm with debt is caion
Question 1.1.Equity in a firm with debt is called: (Points : 10)
levered equity.
riskless equity.
unlevered equity.
preferred equity.
Question 2.2.Which of the following is not one of Modigliani and Miller’s sets of conditions referred to as perfect capital markets? (Points : 10)
All investors hold the efficient portfolio of assets.
There are no taxes, transaction costs, or issuance costs associated with security trading.
A firm’s financing decisions do not change the cash flows generated by its investments, nor do they reveal new information about them.
Investors and firms can trade the same set of securities at competitive market prices equal to the present value of their future cash flows.
Question 3.3.Consider the following equation:E+D=U=A. TheUin this equation represents: (Points : 10)
the value of the firm’s equity.
the market value of the firm’s assets.
the value of the firm’s unlevered equity.
the value of the firm’s debt.
Question 4.4.Assume that Rose Corporation’s (RC) has 5 million shares outstanding and its stock is trading for a price of $12.00 per share. RC is considering borrowing $12 million at a rate of 6% and using the proceeds to repurchase shares at the current price of $12.00. Following the borrowing of $12 and subsequent share repurchase, the number of shares that RC will have outstanding is closest to __________. (Points : 10)
4.0 million
6.0 million
4.9 million
4.5 million
Question 5.5.Rosewood Industries has EBIT of $450 million, interest expense of $175 million, and a corporate tax rate of 35%. Rosewood’s net income is closest to __________. (Points : 10)
$450 million
$179 million
$290 million
$95 million
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