FIN 534 RANK Change The World /fin534rank.com FIN 534 RANK Change The World /fin534rank.com | Page 19

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Question 11
Which of the following statements is CORRECT?
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Question 12
Other things held constant, which of the following events is most
likely to encourage a firm to increase the amount of debt in its capital
structure?
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Question 13
Blueline Publishers is considering a recapitalization plan. It is
currently 100% equity financed but under the plan it would issue long-
term debt with a yield of 9% and use the proceeds to repurchase
common stock. The recapitalization would not change the company's
total assets, nor would it affect the firm's basic earning power, which is
currently 15%. The CFO believes that this recapitalization would reduce
the WACC and increase stock price. Which of the following would also
be likely to occur if the company goes ahead with the recapitalization
plan?
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Question 14