# FINC 600 FINC600 Week 6 Practice Quiz Answers (APU)

FINC600 Week 6 Practice Quiz (APUS)

- 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 - 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%)
- In order to calculate the tax shields provided by debt, the tax rate used is the:
- The reason that MM Proposition I does not hold good in the presence of corporate taxes is because:
- Assuming that bonds are sold at a fair price, the benefits from the tax shield go to the:
- The pecking order theory of capital structure predicts that:
- 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 - The after-tax weighted average cost of capital is determined by:
- In calculating the weighted average cost of capital, the values used for D, E and V are:
- 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%?
- 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: - Lowering debt-equity ratio of a firm can change: I) financing proportions

II) cost of equity

III) cost of debt IV) effective tax rate - Floatation costs are incorporated into the APV framework by:
- Subsidized loans have the effect of:
- APV method is most useful in analyzing: