Capital Structure and Leverage 9

# Capital Structure and Leverage 9 - A B C D E 9 The unlev...

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Old Exam Questions - Capital Structure and Leverage Page 9 of 31 Pages A. 412,275 B. 408,375 C. 400,575 D. 396,475 E. 404,175 9. The unlevered beta of a firm is 0.7273. However, this firm has an actual capital structure of 50% debt and 50% equity. If you assume that the beta of debt is 0, the tax rate is 35 percent, the risk free-rate is 4%, and the risk premium on the market is 8%, then what rate of return should be required by stockholders according to the CAPM? A. 13.60% B. 14.20% C. 14.00% D. 13.80% E. 14.40% 10. A company generates \$5,000,000 in sales (1,000,000 units sold at a price of \$5 per unit). Its variable costs equal 80 percent of sales, its fixed costs are \$500,000, its interest expense is equal to \$100,000, its tax rate is equal to 40%, and it has 2,000,000 shares of common stock outstanding. Assuming that the change in sales will have no effect on the company's tax rate and that we can use standard degree of leverage functions (operating, financial, total, etc.), what will be the expected dollar
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