Use the Information for the Question(s)below

question 3

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 you borrow $30,000 in financing the project.According to MM proposition II,the firm's equity cost of capital will be closest to:

• A)21%.
• B)15%.
• C)20%.
• D)25%.

---

Definitions:

Modeling

In psychology, a therapeutic technique that involves learning through the observation of others’ behaviors and the outcomes of those behaviors.

Systematic Desensitization

An exposure therapy that uses relaxation training and a fear hierarchy to help clients with phobias react calmly to the objects or situations they dread.

Flooding

A psychological treatment method where a person is exposed to their phobia at its worst until the fear diminishes.

Specific Phobias

An irrational fear and avoidance of a particular object or situation that poses little to no actual danger.