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Question
Which of the following statements concerning the compressed adjusted present value (APV) model is NOT CORRECT?a. The value of a growing tax shield is greater than the value of a constant tax shield.
b. For a given D/S, the levered cost of equity in the compressed APV model is greater than the levered cost of equity under MM's original (with tax) assumptions.
c. For a given D/S, the WACC in the compressed APV model is greater than the WACC under MM's original (with tax) assumptions.
d. The total value of the firm is independent of the amount of debt it uses.
e. The tax shields should be discounted at the unlevered cost of equity.
Answer
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In a portfolio of three different stocks, which of the following could NOT be true?
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Suppose that you're planning a vacation and borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value. What effective annual interest rate are you being charged?a. 14.00%b. 8.57%c. 16.28%d. 21.21%e. 28.00%
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Which of the following is not correct for a firm with seasonal sales and customers who all pay promptly at the end of 30 days?
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b. The level of accounts receivable will be constant from month to month.
c. The ratio of accounts receivable to sales will vary from month to month.
d. The level of accounts receivable at the end of each quarter will be the same.
e. DSO will vary from month to month.
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a. True
b. False