Calculate the WACC, and give the answer as a whole number without a percentage sign.

Question 1

1. Using additional debt in the capital mix lowers the leverage and decreases the return on equity.

True

False

0.2 points

Question 2

1. Loan covenants will usually put an effective limit on the amount of debt that a company can incur.

True

False

0.2 points

Question 3

1. Forebearance is the process by which a lender terminates a borrower’s equitable right of redemption.

True

False

0.2 points

Question 4

1. Chapter 11 bankruptcy is used when a company wants to immediately liquidate its assets and pay off its creditors.

True

False

0.2 points

Question 5

1. An inverted yield curve is often an indication that the economy is about to experience a severe downturn.

True

False

0.2 points

Question 6

1. RevPAR tends to swing far more than the general economic activity level during both recessions and boom times.

True

False

0.2 points

Question 7

1. A reasonable benchmark for an equity capital component return in a hospitality industry project is 9%

True

False

0.2 points

Question 8

1. Indicate which of the following are characteristics of debt. (You may need to select more than one item from the list.)

Permanent

Repayment required

Tax-advantages

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HOS 470 Chapter 6 Quiz – Using additional debt in the capital mix lowers the leverage and decreases

the return on equity

Asked by sharpie

Dated: 30th Nov’15 11:48 AM

Bounty offered: $22.00

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10/9/2017 HOS 470 Chapter 6 Quiz – Using additional debt in the capital mix lowers the leverage and decreases the return on equity – SKU 105310

https://www.hometaskguru.com/question/view/105310/HOS-470-Chapter-6-Quiz-Using-additional-debt-in-the-capital-mix-lowers-the-leverage-and-decr… 2/4

Increases bankruptcy risk

Fewer restrictions

0.2 points

Question 9

1. Indicate which of the following are characteristics of equity. (You may need to select more than one item from the list.)

Temporary

Ownership

Liability

Reduces bankruptcy risk

More restrictions

0.2 points

Question 10

1. On the line next to each description of a loan feature in Column A, place the letter of the name of that feature in Column B which it describes.

2.

3. Balloon payment

Pledge of owner’s assets to secure loan

Pledge of business assets to secure loan

Total cost including rate, fees points, etc. amortized over the life of the loan

2.

3. Relationship between the term of the loan and the rate on that loan.

A. Effective borrowing rate

B. Large payment due before final maturity

C. Yield curve

D. Collateral

E. Personal guarantee

0.2 points

Question 11

1. On the line next to each description of a loan feature in Column A, place the letter of the name of that feature in Column B which it describes.

2.

3. Portion of debt service which reduces loan balance

Lender’s return for use of funds

Amount borrowed

Additional interest charge assessed if loan is repaid before normal maturity

2.

3. Number of years/months to repay

A. Term

B. Interest

C. Principal

D. Prepayment penalty

E. Principal repayment

0.2 points

Question 12

1. On the line next to each description of a cause of a recession in Column A, place the letter of the time period of that recession in Column B which it describes.

2.

3. Savings & Loan crisis

OPEC oil embargo, stagflation

Iranian revolution, oil price increase, inflation

End of dot com boom, 9/11

2.

3. Housing market collapse

A. Early 1970s

B. Early 1990s

C. 2008 to Current

D. Early 1980s

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10/9/2017 HOS 470 Chapter 6 Quiz – Using additional debt in the capital mix lowers the leverage and decreases the return on equity – SKU 105310

https://www.hometaskguru.com/question/view/105310/HOS-470-Chapter-6-Quiz-Using-additional-debt-in-the-capital-mix-lowers-the-leverage-and-decr… 3/4

E. Early 2000s

0.2 points

Question 13

1. A loan has a pre-tax rate of 12%. The tax rate is 25%.

Compute the after-tax rate, and give the answer as a whole number without a percentage sign. That is, if you believe the answer is 3% enter 3. If 17%, enter 17.

0.2 points

Question 14

1. A project has a market value of $250,000. The sum of all of the debt associated with the project is $200,000.

Compute the LTV ratio, and give the answer as a whole number without a percentage sign. That is, if you believe the answer is 3% enter 3. If 17%, enter 17.

0.2 points

Question 15

1. Assume:

o a 50/50 split between debt and equity capital,

o ROE = 18%, and

o After-Tax Cost of Debt = 6%

Calculate the WACC, and give the answer as a whole number without a percentage sign. That is, if you believe the answer is 3% enter 3. If 17%, enter 17.

0.2 points

Question 16

1. Assume:

o debt is 60% of capital

o equity is 40%.

o pre-tax cost of debt is 15%

o tax rate is 33%

o return on equity is 20%

Calculate the WACC, and give the answer as a whole number without a percentage sign. That is, if you believe the answer is 3% enter 3. If 17%, enter 17.

0.2 points

Question 17

1. A project has a total value of $12 million. Debt capital will be $9 million.

Calculate the percentage of the capital supplied by equity, and give the answer as a whole number without a percentage sign. That is, if you believe the answer is 3%

enter 3. If 17%, enter 17.

0.2 points

Question 18

1. A project has an offer of external capital at 15%, and debt at 8%. The company could also use retained earnings to finance the project. What rate should be used for

the retained earnings if used as capital?

Give the answer as a whole number without a percentage sign. That is, if you believe the answer is 3% enter 3. If 17%, enter 17.

0.2 points

Question 19

1. Assume:

o the cash flow before debt service is $8,000,000

o the pre-tax cost of the debt is 8%

o debt is $4,500,000

o the equity partner is guaranteed 43% of net cash flow

Calculate the equity partner’s dollar share of the net cash flow in dollars. Express your answer in millions of dollars to the nearest tenth without a dollar sign. That is if you

believe the answer is $7.412 million enter 7.4. If $3.087 million, enter 3.1

0.2 points

Question 20

1. Assume:

o the pre-tax cost of debt is 9%

o the tax rate is 30%

o the debt supplies 65% of total capital

o the return on equity in the project is 16%

Calculate the WACC, and give the answer as a number to the nearest tenth without a percentage sign. That is, if you believe the answer is 3.41% enter 3.4 If 17.78%,

enter 17.8

0.2 points

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