FIN 534 RANK Imagine Your Future / FIN 534 RANK Imagine Your Future / - Page 20

currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? • Question 14 Which of the following is NOT associated with (or does not contribute to) business risk? Recall that business risk is affected by a firm's operations. • Question 15 Barette Consulting currently has no debt in its capital structure, has $500 million of total assets, and its basic earning power is 15%. The CFO is contemplating a recapitalization where it will issue debt at a cost of 10% and use the proceeds to buy back shares of the company's common stock, paying book value. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain unchanged. Which of the following is most likely to occur as a result of the recapitalization? • Question 16 Which of the following statements is CORRECT?