Concept Checks

9.1: Greater.
For this firm, the over levering might have consequences for operating income.

9.2: True
They are under less threat of a takeover.

9.3: Other ..
I would sell those assets where I can get the highest price relative to my estimated value. (These might be assets that are currently being over valued by the market)

9.4: Paying large special dividend or Buying Back Stock
Both will reduce equity while leaving debt unchanged, and thus increase the debt ratio.

9.5: The cost of equity of the acquired firm
This is the same principle we used in investment analysis. The hurdle rate for an investment should be based upon the risk of the investment (not the risk of the investor)

9.6: False
The matching of cash flows on assets and financing will reduce the likelihood of default and allow the firm to borrow more. Since there is a tax benefit from borrowing, it will increase the value of the firm.

9.7: Understate duration
We are ignoring the cash flows that occur after the artificial termination of the project.

9.8: Firms with a few large homogeneous projects
The portfolio effects will be minimal (because the projects are correlated with each other) and the project size will reduce transactions costs.

9.9: increase substantially
Floating rate debt allows firms to link their cash flows with interest rates, which will also become more volatile with inflation rates.

9.10: adding special features can still create value even if the bonds are fairly priced
By issuing such bonds, firms can reduce their default risk and increase their capacity to borrow.

9.11: the coefficient on the regression is a noisy estimate, and you should look at longer periods or sector averages.
The individual firm regressions will almost always be noisy. Estimating bottom-up regression coefficients by looking at sector averages will provide more updated and precise estimates.