W10FIN3300_CH13_Ans (1)

W10FIN3300_CH13_Ans (1) - (7) Answer: B Given that E/V =...

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FIN 3300-03 Chapter 13 Exercise Answers Winter 2010 (1) Answer: B (2) Answer: B [0.6 x (1-35%) x 8%] + (0.4 x 15%) = 9.12% (3) Answer: C After-tax cost of debt = Pretax cost x (1 - tax rate) 9% = Pretax cost x .65 Î Pretax cost of debt = 9%/.65 = 13.85% (4) Answer: D (5) Answer: D r equity = g P DIV 0 1 + = % 5 00 . 40 40 . 4 + = 11% + 5% = 16% (6) Answer: D 9% = Dividend/Price Î Dividend/54.00 = 9% Î Dividend = 54x9% = 4.86
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Unformatted text preview: (7) Answer: B Given that E/V = 0.45 and E = 58 million 58m/V = 0.45 V = 58m/0.45 Value of firm (V) = $128,888,889 $129 million (8) Answer: A Let x = % of debt. Then 3x = % of equity and 4x = 100% x = 25.0% Equity ratio = 3x = 75.0% (9) Answer: A Expected return on stock = 6% + [1.5(15% - 6%)] = 6 + 13.5 = 19.5% (10) Answer: D r e = (4/25) + 0.05 = 21.00%...
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