Mm Extension With Growth

1. (TCO B) Which of the following statements concerning the MM extension with growth is NOT CORRECT (a) The tax shields should be discounted at the unlevered cost of equity. (b) The value of a growing tax shield is greater than the value of a constant tax shield. (c) For a given D/S, the levered cost of equity is greater than the levered cost of equity under MMs original (with tax) assumptions. (d) For a given D/S, the WACC is greater than the WACC under MMs original (with tax) assumptions. (e) The total value of the firm is independent of the amount of debt it uses. (Points 20) 2. (TCO D) Which of the following is generally NOT true and an advantage of going public (a) Facilitates stockholder diversification. (b) Increases the liquidity of the firms stock. (c) Makes it easier to obtain new equity capital. (d) Establishes a market value for the firm. (e) Makes it easier for owner-managers to engage in profitable self-dealings. (Points 20) 3. (TCO E) Busters Beverages is negotiating a lease on a new piece of equipment that would cost 100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be