1. A firm currently has a debt-equity ratio of .50, an after-tax cost of debt of 8%, and a cost of equity of 12%. The firm changes its debt-equity ratio to .40, all else constant. This change will:
a. Increase the total debt level of the firm.
b. Decrease the firm’s WACC.
c. Increase the cost of equity financing.
d. Cause the NPV of projects under consideration to decrease.
e. Not affect the firm’s capital budgeting decisions.
2. A bond has a face value of $30,000 and matures in 62 days. What is the bank discount yield if the bond is currently selling for $29,750?
4.67 percent
4.84 percent
5.48 percent
5.78 percent
6.03 percent