Delta Mills and Franklin Mill Are Identical Firms Except for Their

question 78

Multiple Choice

Delta Mills and Franklin Mill are identical firms except for their capital structures.Delta is an unlevered firm with $680,000 of equity.Franklin is a levered firm with $425,000 of equity and $255,000 of debt at an interest rate of 6.2 percent.Both Delta and Franklin have an expected EBIT of $84,000.Ignore taxes.Delta has a WACC of ________ percent and Franklin's WACC is ________ percent.

• A)12.35; 11.05
• B)12.35; 14.10
• C)12.35; 12.35
• D)14.10; 14.10
• E)16.10; 14.10

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Definitions:

Scatterplot

A type of graph used in statistics to visually display and assess the relationship between two numerical variables.

Correlation

An index quantifying the degree to which two variables exhibit concomitant variation.

Degrees Celsius

A unit of temperature on the Celsius scale, a temperature scale originally known as the centigrade scale, where 0 degrees represents the freezing point of water and 100 degrees its boiling point at sea level.

Public Service Announcement

A message broadcast on television, radio, or public spaces to inform or educate the public about an issue of public interest.