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Author Question: If debt financing is used, which of the following is correct? (Read 396 times)

ninaj

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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.



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Marked as best answer by ninaj on Aug 7, 2023

labrinker

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ninaj

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Reply 2 on: Aug 7, 2023
YES! Correct, THANKS for helping me on my review


anyusername12131

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Reply 3 on: Yesterday
:D TYSM

 

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