hw quiz - Bigelow, Inc. has a cost of equity of 13.56% and...

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Bigelow, Inc. has a cost of equity of 13.56% and a pre-tax cost of debt of 7%. The required return on the assets is 11%. What is the firm’s debt-equity ratio based on MM Proposition II with no taxes? A) .60 B) .64 C) .72 D) .75 E) .80 2. The increase in risk to equity holders when financial leverage is introduced is evidenced by: A) higher EPS as EBIT increases. B) a higher variability of EPS with debt than all equity. C) increased use of homemade leverage. D) equivalence value between levered and unlevered firms in the presence of taxes. E) None of the above. 3. The effect of financial leverage depends on the operating earnings of the company. Which of the following is not true? A) Below the indifference or break-even point in EBIT the non-levered structure is superior. B) Financial leverage increases the slope of the EPS line. C) Above the indifference or break-even point the increase in EPS for all equity plans is less than debt-equity plans. D) Above the indifference or break-even point the increase in EPS for all equity plans is greater than debt-equity plans. E) The rate of return on operating assets is unaffected by leverage. 4.
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Cocoa Springs Company is trying to determine the optimal capital structure in a world without taxes. They currently do not have any debt in their capital structure with 300,000 shares outstanding. They are considering an alternative plan where they would have 120,000 shares of stock and $3.0 million in debt at a 12 percent interest rate. Which of the following represents
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This note was uploaded on 07/12/2011 for the course FIN 573 taught by Professor Gregfilbeck during the Spring '11 term at Pennsylvania State University, University Park.

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hw quiz - Bigelow, Inc. has a cost of equity of 13.56% and...

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