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
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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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