Johnson Tire Distributors Has Debt with Both a Face and a Market

question 17

Multiple Choice

Johnson Tire Distributors has debt with both a face and a market value of $12,000.This debt has a coupon rate of 6 percent and pays interest annually.The expected earnings before interest and taxes are $2,100,the tax rate is 30 percent,and the unlevered cost of capital is 11.7 percent.What is the firm's cost of equity?

• A)22.46 percent
• B)22.87 percent
• C)23.20 percent
• D)23.59 percent
• E)25.14 percent

Calculate and analyze the NPV of projects under different scenarios using probability forecasts.

Understand the importance of risk adjustment in capital budgeting and the use of appropriate discount rates.

Relate the concept of risk aversion from portfolio theory to capital budgeting decisions.

Evaluate the value of rough estimates of probability distribution of project NPV or IRR over point estimates.

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Definitions:

Square Meters

A unit of area measurement in the metric system, used to quantify the size of an area, equal to the area of a square with sides that are one meter in length.

Square Centimeters

Square Centimeters is a unit of area measurement equivalent to the area of a square with 1 centimeter on each side, used in measuring small surfaces.

Depakene Syrup

A liquid form of the medication valproic acid, used primarily to treat seizure disorders, bipolar disorder, and to prevent migraine headaches.

Mg/Kg/Day

A unit of measurement indicating milligrams of a substance per kilogram of body weight per day, often used in medical dosing.