Use the Information for the Question(s)below

question 19

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 $40,000 at the risk-free rate and issues new equity to cover the remainder.In this situation,the cost of capital for the firm's levered equity is closest to:

• A)23%.
• B)25%.
• C)15%.
• D)18%.

---

Definitions:

Emotion

A complex psychological state that involves an experience of thought, physical responses, and cultural or social expressions.

Stress

A physical or emotional response to external or internal demands or pressures.

Biological Rhythms

Natural cycles of change in bodily functions or behaviors, such as the circadian rhythm, that occur in a predictable pattern.

Uterine Contractions

The tightening and shortening of the uterine muscles, typically occurring during childbirth, menstruation, or sometimes as part of a medical procedure.