Suppose That Taggart Transcontinental Currently Has No Debt and Has

question 46

Multiple Choice

Suppose that Taggart Transcontinental currently has no debt and has an equity cost of capital of 10%.Taggart is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Taggart borrows until they achieved a debt-to-value ratio of 20%,then Taggart's levered cost of equity would be closest to:

• A)8.0%.
• B)9.2%.
• C)10.0%.
• D)11.0%.

---

Definitions:

Schemata

Cognitive structures that represent organized knowledge about concepts, objects, and events, helping in the understanding and processing of information.

Exemplars

Individual instances or examples of a concept or category that are stored in memory and are used to classify new instances by comparison.

Formal Operations

A stage in Piaget's theory of cognitive development where abstract, logical, and systematic thinking emerges, typically during adolescence.

Rationales

Explanations or reasons for an action or belief, often used to justify decisions and behaviors.