Cynergy Inc

question 51

Multiple Choice

Cynergy Inc.currently has a debt-equity ratio of 0.70, an after-tax cost of debt of 7.5%, and a cost of equity of 14%.If the firm changes its debt-equity ratio to 0.40, it will:

• A)Decrease the firm's WACC.
• B)Increase the firm's total debt.
• C)Cause the NPV of projects under consideration to decrease.
• D)Not have an effect on the firm's capital budgeting decisions.

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Definitions:

Fungible Goods

Items that are interchangeable and indistinguishable from one another in terms of quality and characteristics, making them easily replaceable.

Bona Fide Purchaser

A person who purchases property in good faith without notice of any prior claims, liens, or encumbrances.

Buyer in the Ordinary Course of Business

A purchaser who buys goods in good faith, without notice that the sale violates the rights of another party, in the usual and regular course of the seller’s business.

Bailee

An individual or entity that has been given temporary custody but not ownership of someone else's property.