Which firm has riskier equity? Why?
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- Identify the correct statement: O II EBIT Is expected to be below the indifference point, the firm will prefer the capital structure with more debt O The EBIT-EPS indifference point is the point at which EBIT is the same under two different capital structures O The EBIT-EPS indifference point is always higher for an existing firm compared to a new firm O If EBIT is expected to be above the indifference point the firm will prefer the capital structure with more debtWhich of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mixIs the debt level that maximizes a firm's expected EPS the same as the one that maximizes its stock price? Explain. Explain how a firm might shift its capital structure so as to change its weighted average cost of capital (WACC). What would be the impact on the value of the firm?
- Is there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not? You need to support your answers with examples.Which is true when evaluating two (2) companies operating in the same industry? Since they may have different betas, they should have the different risk-free rates. They should have the same beta. Regardless of capital structure, they should have the same risk-free rate in computing for cost of common equity. They should have the same cost of capital.Which is easier to calculate directly, the expected rate of return on the assets of a firm or the expected rate of return on the firm’s debt and equity?
- Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.What is WACC? Why do firms compute it? What happens to WACC when the debt level of a firm changes?Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?
- If the financial market is frictionless, the cost of equity is higher than the cost of debt in all firms. Therefore, in this circumstance, firms must finance their projects by issuing debt rather than equity. Is it right?Suppose a firm invest in proects that are much riskier than its average investments. Do you think the firm's weighted average cost of capital will be affected? Explain.According to the trade-off model of capital structure, why is there an optimal capital structure for a particular firm?