FINC 600 FINC600 Week 6 Practice Quiz Answers (APU)

FINC600 Week 6 Practice Quiz (APUS)

1. The main advantage of debt financing for a firm is:
   I) no SEC registration is required for bond issue
   II) interest expense of a firm is tax deductible
   III) unlevered firms have higher value than levered firms 
2. If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the tax rate is 30%) 
3. In order to calculate the tax shields provided by debt, the tax rate used is the: 
4. The reason that MM Proposition I does not hold good in the presence of corporate taxes is because: 
5. Assuming that bonds are sold at a fair price, the benefits from the tax shield go to the: 
6. The pecking order theory of capital structure predicts that: 
7. Capital budgeting decisions that include both investment and financing decisions can be analyzed by:
   I) Adjusting the present value
   II) Adjusting the discount rate III) Ignoring financing mix 
8. The after-tax weighted average cost of capital is determined by: 
9. In calculating the weighted average cost of capital, the values used for D, E and V are: 
10. A firm has a total market value of $10 million and debt has a market value of $4 million. What is the after-tax weighted average cost of capital if the before - tax cost of debt is 10%, the cost of equity is 15% and the tax rate is 35%? 
11. Given the following data for year-1:
    Profits after taxes = $20 millions; Depreciation = $6 millions;
    Interest expense = $4 millions;
    Investment in fixed assets = $12 millions; Investment in working capital = $4 millions. Calculate the free cash flow (FCF) for year-1: 
12. Lowering debt-equity ratio of a firm can change: I) financing proportions
    II) cost of equity
    III) cost of debt IV) effective tax rate 
13. Floatation costs are incorporated into the APV framework by: 
14. Subsidized loans have the effect of: 
15. APV method is most useful in analyzing: