1. What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? Ignore taxes.
A. 54.0%
B. 60.0%
C. 66.7%
D. 75.0%
2. A firm has perpetual debt of $10 million at an interest rate of 7%. What is the present value of the interest tax shield if the tax rate is 35%?
A. $245,000
B. $700,000
C. $3,500,000
D. $10,000,000