{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Assignment #13 answers

Assignment #13 answers - Answers to Assignment No 13...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to Assignment No. 13 Chapter 15- Questions and Problems: Answer to Q 1 a. True. b. False. As leverage increases, the expected rate of return on equity rises by just enough to compensate for its higher risk. The stock price and stockholders’ wealth are unaffected. c. False. The sensitivity of equity returns to business risk, and therefore the cost of equity, rises with leverage even without a change in the risk of financial distress. Answer to Q 2 While the costs of both debt and equity do increase, the weight applied to debt in the cost of capital formula also increases. Applying a higher weight to the lower-cost source of capital offsets the increase in the expected returns. Answer to Q 7 The pecking order theory states that firms prefer to raise funds through internal finance, and if external finance is required, that they prefer debt to equity issues. This preference – or pecking –
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern