Use the Information for the Question(s)below

question 70

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 and that your firm pays 21% of earnings in taxes.If you want to maintain ownership of at least 50%,then the minimum amount of debt that you must issue to fund the expansion is closest to:

• A)$19 million.
• B)$14 million.
• C)$16 million.
• D)$20 million.

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Definitions:

Narcissism

A personality trait characterized by a grandiose sense of self-importance, a need for admiration, and a lack of empathy for others.

Accumulating

The process of gathering or amassing objects, facts, or information over a period of time.

Autonomy

The ability or right of individuals to make their own choices and decisions.

Attention

Concentrating one's mental faculties on a single aspect of the environment, while sidelining other details.