Use the Information for the Question(s)below

question 96

Multiple Choice

Use the information for the question(s) below.
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy,with each outcome being equally likely.The initial investment required for the project is $80,000,and the project's cost of capital is 15%.The risk-free interest rate is 5%.
-Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk-free rate,then the cost of capital for the firm's levered equity is closest to:

• A)45%.
• B)25%.
• C)15%.
• D)95%.

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Definitions:

Flexible Manufacturing System

An automated production system that can be quickly adapted to manufacture different products.

Ethically Friendly Processes

Business practices or manufacturing processes that are considered morally good, environmentally sustainable, and socially responsible.