Dye Industries Currently Uses No Debt, but Its New CFO

question 10

Multiple Choice

Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 40.0% debt (wd) Risk-free rate, rRF 6.00% Tax rate, T 40% Market risk premium, RPM 4.00% Current wd 0% Current beta, bU 1.15 Target wd 40%

• A) 1.66%
• B) 1.84%
• C) 2.02%
• D) 2.23%
• E) 2.45%

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Definitions:

Appraised Value

An estimation of the fair market value of an asset or property, typically determined by a professional appraiser.

Boot

Additional value or cash that balances the value of the assets being traded in a barter or exchange transaction.

Fair Market Value

Fair Market Value is the estimated price at which an asset would change hands between a willing buyer and seller, neither being under compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

Book Value

The value of an asset according to its balance sheet account balance, calculated by subtracting accumulated depreciation from the asset's original cost.