1. Which of the following expresses the value of a levered firm (VL) in the Static Tradeoff model of optimal capital structure? [Note: VU denotes the value of the unlevered firm; CFD denotes expected costs of financial distress; and PV denotes present value.]
A. VL = PV(Tax Shield) - PV(CFD)
B. VL = VU + PV(Tax Shield) / PV(CFD)
C. VL = VU + PV(Tax Shield) - PV(CFD)
D. VL = VU + PV(Tax Shield)
2. Which of the following ratios appears on a common-size balance sheet?
I. Debt to asset ratio
II. Net working capital to total assets
III. Net profit margin
A I , II, III
B I only
C I and III
D III only