Fin 125 Exam 3

Daenerys Financial has 7,00 bonds outstanding with a face value of $1,000 each that currently sells for $982 on the market. The coupon rate is 6.95%. The interest is paid semiannually. What is the amount of the annual interest tax shield if the tax rate is 23%?

$111,895

A project...

$134,700

Sansa Corp

$75,000,000

Shae Bakery

-623,100

Samwell Sandwiches....

1,661 shares

Cersei Utilities

10,185,000

Stannis Boutique

10.31%

Margery Corp

12.33%

Arya

13.78%

Khal and Jorah

14.47;11.75

Q17 First Debt Issue

2.11%

Q17 Weighted average after tax cost of debt

3.08%

Bran Brands....

8.28%

Joffery Inc

8.91%

Jon Shoppe

9.15%

According to the Pecking Order Theory, what source of capital do companies prefer when they need funds to pursue a new project?

Common Equity

When the yield to maturity is unknown, the coupon rate can be used as the cost of debt

FALSE

Referring to the Modigliani and Miller Proposition I with taxes, optimal capital structure does not exist.

False

The company ___________ the leverage when it issues new debt and uses the proceeds to buy back some of its outstanding stock. The company _________ the leverage when it issues new equity and uses the proceeds to retire of its outstanding debt. Increases; increases Decreases; decreases Increases; Decreases Decreases; Increases

Increases; Decreases

Which of the following four sources of capital has the lowest cost for a typical corporation? Preferred Equity Subordinated Debt Mortgaged-backed security Convertible Debt

Subordinated Debt

Referring to M&M prop II , without taxes the cost of equity capital is increasing as the percentage of debt in the capital structure increases

TRUE

The value of the company depends on:

The overall cash flows

If a company has the optimal amount of debt in its capital structure, then the:

Value of the levered company will exceed the value of the unlevered company

Pro forma financial statements can best be described as financial statements

showing projected values for the future time periods

The discount rate assigned to an individual project should be based on

the risks associated with the use of the funds required by the project