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  1. business
  2. accounting
  3. allow for a miller-modigliani world. assume that y

Allow for a Miller-Modigliani world. Assume that you have a firm that is funded entirely...

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Accounting

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Allow for a Miller-Modigliani world. Assume that you have a firm that is funded entirely with equity and has a beta (unlevered) of 0.90; the risk free rate is 3% and the equity risk premium is 6%. What will happen to the cost of debt and equity if the firm moves to a 20% debt ratio? Cost of debt is 3%, Cost of Equity is 9.75% Cost of debt and equity stay the same since this is a Miller-Modigliani World Cost of debt is 3%, Cost of Equity is 8.75% Cost of debt is 4%. Cost of Equity is 8.75% O Cost of debt is 4%%, Cost of Equity is 9.75% Question 4 0.5 pts Thadeus Inc. is a publicly traded chemical company with a bond rating of AA and a pre-tax cost of debt of 3.50% at its existing debt to capital ratio of 40% ($400 million debt & $ 600 million equity). The firm has operating income of 570million and is considering borrowing $ 200 million and buying back stock. If it does so, what will the immediate interest coverage ratio for the firm be, assuming that the firm's rating will drop to BBB, that the interest for BBB rated bonds is 5%, and that old debt holders can't refinance? 2.33 2.67 0 3.33 2.92 None of the above

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