Firm ABC currently has zero debt.  Its FCF is $60,000, and i…

Firm ABC currently has zero debt.  Its FCF is $60,000, and it is a zero growth company.  ABC’s current cost of equity is 13%, and its tax rate is 40%.  The firm has 20,000 shares of common stock outstanding selling at a price per share of $23.08.  ABC is considering moving to a capital structure that is comprised of 20% debt and 80% equity, based on market values.  The debt would have an interest rate of 7%.  The new funds would be used to repurchase outstanding stock.  It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise to 14%.  If this plan were carried out, what would ABC’s new enterprise value?

Which of the following statements are CORRECT? I) One advant…

Which of the following statements are CORRECT? I) One advantage of dividends over share repurchases is that dividends provide financial managers with more flexibility. II) Despite several advantages of share repurchases, dividends remain the dominant form of shareholder payout. III) After announcing a share repurchase program, a firm is not required to repurchase any of the shares it intended to buy back.

Which of the following improve(s) the corporate governance o…

Which of the following improve(s) the corporate governance of a firm? I) A larger fraction of independent directors on the board II) Having the CEO serve as the chairman of the board of directors to increase efficiency III) Block ownership by an activist investor who is trying to maximize shareholder wealth IV) A compensation plan that utilizes stock options for the managers of the firm V) The threat of removal for managers