Use the Information for the Question(s)below

question 110

Multiple Choice

Use the information for the question(s) below.
You own your own firm and you need to raise $50 million to fund an expansion.Following the expansion,your firm will be worth $75 million in its unlevered form.You want to go ahead with the expansion,but you are concerned that you may not be able to maintain ownership of over 50% of your firm's equity.In other words,you are concerned that if you use equity to finance the expansion,you may lose control of your firm.
-Assume that capital markets are perfect except for the existence of corporate taxes.Your firm pays 21% of earnings in taxes and you decide to issue $25 million in new debt and $25 million in new equity.Your ownership stake in the firm following these new issues of debt and equity is closest to:

• A)58%.
• B)55%.
• C)33%.
• D)50%.

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Definitions:

Phonemes

The basic units of sound in a language that distinguish one word from another, e.g., the difference between the "p" in "pat" and the "b" in "bat".

Function Morphemes

Words or affixes that provide grammatical relationships between words in a sentence but do not have explicit meanings by themselves.

Nonsense Syllables

A string of sounds that do not form meaningful words, used in psychological experiments to study memory and learning processes, avoiding the influence of prior knowledge.

Morphemes

The smallest grammatical units in a language that carry meaning.