Answer the multiple choice. Pick one option please

1.

Which one of these statements related to Chapter 11 bankruptcy is correct?

A firm can only file for Chapter 11 after it becomes totally insolvent.

Prepacks apply only to Chapter 7, not Chapter 11 bankruptcies.

Firms may file for Chapter 11 in an attempt to gain a competitive advantage.

Chapter 11 involves the total liquidation of a firm.

Senior management must be replaced prior to firm exiting Chapter 11.

2.

Katlin Markets is debating between a levered and an unlevered capital structure. The all-equity capital structure would consist of 75,000 shares of stock. The debt and equity option would consist of 40,000 shares of stock plus $320,000 of debt with an interest rate of 6.25 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.

$42,857.14

$44,140.71

$49,666.67

$46,333.33

$42,208.15

3.

Eastern Markets has no debt outstanding and a total market value of $154,000. Earnings before interest and taxes, EBIT, are projected to be $12,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 27 percent higher. If there is a recession, then EBIT will be 55 percent lower. The firm is considering a $20,000 debt issue with an interest rate of 6.5 percent. The proceeds will be used to repurchase shares of stock. There are currently 2,000 shares outstanding. Ignore taxes. What will be the percentage change in EPS if the economy enters a recessionary period?

-58 percent

-55 percent

-62 percent

-71 percent

-46 percent

4.

SLG Corp. is an all-equity firm with a weighted average cost of capital of 9.68 percent. The current market value of the equity is $27.5 million and the tax rate is 35 percent. What is EBIT?

$1,730,300

$2,821,194

$6,180,000

$4,095,385

$9,943,182