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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
Which of the following is NOT associated with (or does not
contribute to) business risk? Recall that business risk is affected by a
firm's operations.
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Question 15
Barette Consulting currently has no debt in its capital structure,
has $500 million of total assets, and its basic earning power is 15%. The
CFO is contemplating a recapitalization where it will issue debt at a cost
of 10% and use the proceeds to buy back shares of the company's
common stock, paying book value. If the company proceeds with the
recapitalization, its operating income, total assets, and tax rate will
remain unchanged. Which of the following is most likely to occur as a
result of the recapitalization?
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Question 16
Which of the following statements is CORRECT?