Class 7 Flashcards
1
Q
Does issuing debt affect project value?
A
No it does not
2
Q
what has a higher equity beta and cost of equity, levered or unlevered firms?
A
levered: financial leverage amplifies business risk
3
Q
what happens to equity risk when the debt ratio is increased?
A
equity risk increases (B and Re)
4
Q
what is the difference between rWACC and rU
A
rWACC is the cost of capital for a levered firm/project
rU is the (hypothetical) unlevered cost of capital
5
Q
which is greater, rWACC or rU
A
rU
6
Q
Does rWACC and rU look at tax?
A
ONLY rWACC captures tax
