Horton Anonymous has a debt-to-equity ratio of one and pays a flat
tax of 15% on taxable income. Which one of the following statements is correct in relation to M&M Proposition II?
-The firm's required return on assets is greater than the weighted average cost of capital.
-The firm's required return on assets is equal to the weighted average cost of capital.
-The firm's cost of equity remains constant as the debt-equity ratio increases.
-The firm's financial risk is unaffected by the debt-equity ratio.
-The firm's cost of equity is inversely related to the debt-equity ratio.
Widgets-R-Us is considering changing its capital structure away from all-equity. Assume there are no taxes. At the break-even level, the:
-earnings before taxes is the same for the levered and unlevered firm.
-earnings per share is the same for the levered and unlevered firm.
-earnings per share for the levered option are exactly double those of the unlevered option.
-advantages of leverage exceed the disadvantages of leverage.
-firm's earnings before interest and taxes are equal to zero.
The common stock of Tutors Anonymous has a share price of $53 and there are 8.6 million shares outstanding. The current book value per share is $3.
The company also has two bond's outstanding. The first bond issue has a face value of $67 million and sells for 93 percent of par.
The second bond has a face value of $59.34 million and sells for 96.5 percent of par.
Requirement (a)What is Filer's capital structure weight of equity on a book value basis? (Do not round your intermediate calculations.)
(b)What is Filer's capital structure weight of debt on a book value basis? (Do not round your intermediate calculations.)
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