Suppose That BBB Pays Corporate Taxes of 35% and That

question 79

Multiple Choice

Suppose that BBB pays corporate taxes of 35% and that shareholders expects the change in debt to be permanent.Assume that capital markets are perfect except for the existence of corporate taxes and financial distress costs.If the price of BBB's stock rises to $10.85 per share following the announcement,then the present value of BBB's financial distress costs is closest to:

• A)$21.25 million
• B)$35.00 million
• C)$11.40 million
• D)$13.75 million

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Definitions:

Two-proportion Z-test

A statistical test used to compare two population proportions to determine if they are different.

Null Hypothesis

In statistical hypothesis testing, it represents the hypothesis that there is no significant difference or effect, serving as the default or initial assumption.

Margin of Error

The amount of error that can be tolerated in statistical results, representing the range within which the true population parameter is expected to lie.

Confidence Interval

A tableau of values, derived from sampling statistics, seen as likely to incorporate the value of a veiled population parameter.