Author Question: If debt financing is used, which of the following is correct? (Read 37 times)

ninaj · **on:** Aug 7, 2023

Question 1

Given that its debt is $600,000, its leverage value is $679,800, a tax rate of 33%, a cost of debt (unleveraged) of 17%, and a cost of debt of 13%, what is this firm’s cost of equity?

◦

35.33%

◦

36.49%

◦

37.15%

◦

38.20%

Question 2

If debt financing is used, which of the following is correct?

◦

The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.

◦

The percentage change in net operating income will be greater than a given percentage change in net income.

◦

The percentage change in net operating income will be less than the percentage change in net income.

◦

The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.

labrinker · **Reply #1 on:** Aug 7, 2023

A FREE account is required to view all solutions!

Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.

Answer Preview

Only 56% of students answer this correctly