Gator Fabrics Inc ?
A) 2

question 31

Multiple Choice

Gator Fabrics Inc.currently has zero debt .It is a zero growth company,and additional firm data are shown below.Now the company is considering using some debt,moving to the new capital structure indicated below.The money raised would be used to repurchase stock at the current price.It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat,as indicated below.If this plan were carried out,by how much would the WACC change,i.e. ,what is WACC_Old - WACC_New? Do not round your intermediate calculations. $\begin{array}{lllr}w_{d} & 40 \% & \text { Orig cost of equity, } r_{s} & 10.0 \% \\w_{c} & 60 \% & \text { New cost of equity }=r_{s} & 11.0 \% \\\text { Interest rate new }=r_{d} & 6.0 \% & \text { Tax rate } & 40 \%\end{array}$
?

• A) 2.29%
• B) 1.96%
• C) 2.04%
• D) 1.65%
• E) 2.16%

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Definitions:

Alternative Hypothesis

A statistical hypothesis that contradicts the null hypothesis, indicating the presence of an effect, difference, or relationship.

Research Question

A precisely formulated question that a study aims to answer, guiding the direction of the research.

P-value

A statistical measure that helps scientists determine the significance of their research results, indicating the probability of observing their results by chance.

Confidence Intervals

A stretch of values, from sample data analysis, that is envisaged to hold the value of an undefined population characteristic.