 Question 1

1.25 out of 1.25 points

Compute the debt-to-equity ratio for a firm that has a debt-to-value ratio of 60 percent.

Selected Answer:
3/2
Correct Answer:
3/2
 Question 2
1.25 out of 1.25 points

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

Selected Answer:
3/4
Correct Answer:
3/4
 Question 3
1.25 out of 1.25 points

In the notation of the book, K = (1 − λ)Kl + λ(1 − τ)i ; which of the following is correct?
Selected Answer:
The pre-tax cost of debt capital is i
Correct Answer:
The pre-tax cost of debt capital is i
 Question 4
1.25 out of 1.25 points

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2.

Selected Answer:
2/3
Correct Answer:
2/3
 Question 5
0 out of 1.25 points

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 2, a tax rate
of 40 percent, a levered cost of equity of 12 percent and an after-tax cost of debt of 9 percent.

Selected Answer:
7.6 percent
Correct Answer:
 10 percent
 Question 6
1.25 out of 1.25 points

Assume that XYZ Corporation is a leveraged company with the following information:

Kl = cost of equity capital for XYZ = 13 percent

i = before-tax borrowing cost = 8 percent
t = marginal corporate income tax rate = 30 percent

If XYZ's debt-to-total-market-value ratio is 40 percent, then its weighted average cost of

capital, K, is:
Selected Answer:
10 percent
Correct Answer:
10 percent
 Question 7
1.25 out of 1.25 points

In the real world, many firms that have cross-listed their shares on the U.S. markets have
experienced a reduction in the cost of capital. This effect was greater for

Selected Answer:
Australian firms than for Canadian firms.
Correct Answer:
Australian firms than for Canadian firms.
 Question 8
1.25 out of 1.25 points

The required return on equity for an all-equity firm is 10.0 percent. They are considering a
change in capital structure to a debt-to-equity ratio of 1/2, the tax rate is 40 percent, the pre-tax
cost of debt is 8 percent. Find the new cost of capital if this firm changes capital structure.

Selected Answer:
8.67 percent
Correct Answer:
8.67 percent