Question: 14) ABC software is trying to establish its optimal capital structure. It currently has 25% debt and 75% equity. However, the firm CEO believes that

14)

ABC software is trying to establish its optimal capital structure. It currently has 25% debt and 75% equity. However, the firm CEO believes that the firm should use more debt. The risk-free rate is 3% and the market risk premium is 5%. The firm's tax rate is 25% and the cost of equity is 12%, as determined by the CAPM. Assume that the firm changed its capital structure to 40% debt and 60% equity.

How much should be the firm's levered stock beta with the old capital structure? Enter your answer in the following format: 1,234;

Hint #1: Answer is between 1.46 and 2.02

16)

Which of the following is TRUE regarding "Financial risk"?

	A.	Uncertainty over company earnings when the company has debt is financial risk
	B.	Uncertainty over company principal payments is financial risk
	C.	Uncertainty over company sales is financial risk
	D.	Uncertainty over company earnings when the company has zero debt is financial risk

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