Mathawi Hamed

QU$123-$ Advanced Corporate Finakee $-$

MULTIPLE CHOICE

The assumption that the firm's debt$-$equity ratio is constant means:

A$)$ the firm's cost of capital will not fluctuate when it accepts a new probect.

B$)$ corporate taxes are the only imperfection.

C$)$ the risk of its debt and equity will change when it accepts a new project.

D$)$ the firm adjusts its leverage to maintain a constant debt$-$equity ratio in terms of bock value.

Consider the following equation:

$r$ wacc $=\frac{E}{E+D}rE+\frac{D}{E+D}rD(1-c)$

the term $E$ in this equation is:

$($A$)$ the dollar amount of equity.

B$)$ the dollar amount of debt.

C$)$ the required rate of return on debt.

D$)$ the required rate of return on equity.

Consider the following equation:

$r$ wacc $=\frac{E}{E+D}rE+\frac{D}{E+D}rD(1-c)$

the term $D$ in this equation is:

A$)$ the dollar amount of debt.

B$)$ the required rate of return on equity.

C$)$ the required rate of return on debt.

D$)$ the dollar amount of equity.

Consider the following equation:

rwacc$=\frac{E}{E+D}rE+\frac{D}{E+D}rD(1-c)$

the term $rD(1-c)$ in this equation is:

A$)$ the required rate of return on debt.

B$)$ the dollar amount of equity.

C$)$ the after$-$tax required rate of return on debt.

$($D$)$ the required rate of return on equity.