# Solutions to chapter 17 brealey myers

Minimizing the weighted average cost of capital WACC is the same as: Chapter 17 Does Debt Policy Matter? Assuming there are no taxes its cost of equity capital with the new capital structure would be: When comparing levered vs. A firm has zero debt in its capital structure. A less than the break-even income B greater then the break-even income C equal to the break-even income Answer: Multiple Choice Questions 1. A firm has a debt-to-equity ratio of 1. Calculate the weighted average cost of capital. Value additivity does not hold good when assets are split up.

It applies equally to trade-offs of any choice of financial instruments. Does Debt Policy Matter? For a levered firm, beta of equity bE is equal to: The beta of an all equity firm is 1.

Interest on the debt is: A policy of maximizing the value of the firm is the same as a policy policy of maximizing maximizing the shareholders' wealth rests on two important assumptions.

Modigliani-Miller proposition I is an extremely general result. Since the expected rate of return on debt is less than the expected rate of return on equity, the weighted average cost of capital declines as more debt is issued.

Total dividends for Debt Galore equal: Generally, which of the following is true? The expected rate of return on the common stock of a levered firm increases in proportion to the debt-equity ratio, stated in market values.

Answers to Practice Questions 1. Modigliani-Miller proposition I states that changes in capital structure does not affect the value of a firm. Since the expected rate of return on debt is less than the expected rate of the weighted average cost of capital declines as more debt is issued.

Assuming there are no taxes its cost of equity capital with the new capital structure would be: The expected rate of return on the common stock of a levered firm increases in proportion to the debt-equity ratio, stated in market values.

Total income is positive: The traditional view of the debt policy states that moderate amounts of debt increase the expected return on equity, but when the firm borrows too much the expected return on equity declines.

Does Debt Policy Matter? Total dividends for Debt Galore equal: According to EPS- operating income graph, debt financing is preferred if the expected operating income is: State the generalized version of Modigliani-Miller proposition I Type: The equity beta of a levered firm is 1. A The expected return on equity is positively related to leverage B The required return on equity is a linear function of the firm's debt to equity ratio C The risk to equity increases with leverage D All of the above E None of the above Answer: The expected rate of return on the common stock of a levered firm increases in proportion to the debt-equity ratio, stated in market values.

A The market value of any firm is independent of its capital structure B The market value of a firm's debt is independent of its capital structure C The market value of a firm's common stock is independent of its capital structure D None of the above Answer: Explain the concept of arbitrage.

In this method expected level of operating income will determine whether debt financing should be used or equity financing be used. Which of the following is true? The cost of capital for a firm, rWACC, in a tax-free environment is:Manual Solution - Buy downloadable solution manuals for textbooks.

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Here are some notes to assist you as you complete the chapter 17 mini-case: In the statement of cash flows, please analyze the capital expenditures in Note the net increase in cash. CHAPTER 17 Does Debt Policy Matter? Answers to Practice Questions 1. a. The two firms have equal value; let V represent the total value of the firm.

Solutions to chapter 17 brealey myers
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