21) The cost
associated with each additional dollar of financing for investment projects
is
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22) The XYZ
Company is planning a $50 million expansion. The expansion is to be financed
by selling $20 million in new debt and $30 million in new common stock. The
before-tax required rate of return on debt is 9%, and the required rate of
return on equity is 14%. If the company is in the 40% tax bracket, what is
the marginal cost of capital?
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23) Shawhan
Supply plans to maintain its optimal capital structure of 30% debt, 20%
preferred stock, and 50% common stock far into the future. The required return
on each component is: debt–10%; preferred stock–11%; and common stock–18%.
Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan
Supply earn on its investments if the value of the firm is to remain
unchanged?
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24) Lever
Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if
its current capital structure is too conservative. Lever Brothers’ present
EBIT is $3 million, and profits available to common shareholders are
$1,560,000, with 342,857 shares of common stock outstanding. If the firm were
to instead have a debt ratio of 60%, additional interest expense would cause
profits available to stockholders to decline to $1,440,000, but only 228,571
common shares would be outstanding. What is the difference in EPS at a debt
ratio of 60% versus 40%?
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25) Zybeck
Corp. projects operating income of $4 million next year. The firm’s income
tax rate is 40%. Zybeck presently has 750,000 shares of common stock which
have a market value of $10 per share, no preferred stock, and no debt. The
firm is considering two alternatives to finance a new product: (a) the
issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares
of common stock. If Zybeck issues common stock this year, what will be the
projected EPS next year?
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26) _________
risk is generally considered only a paper gain or loss.
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27) Capital
markets in foreign countries
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28) Buying
and selling in more than one market to make a riskless profit is called
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29) What
keeps foreign exchange quotes in two different countries in line with each
other?
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30) One reason
for international investment is to reduce
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