You Are Considering a Stock Investment in One of Two

question 100

Multiple Choice

You are considering a stock investment in one of two firms (A and B) , both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the equity multiplier for the two firms.

• A) Firm A: 15 times; Firm B: 1.00 times
• B) Firm A: 10 times; Firm B: 1.11 times
• C) Firm A: 10 times; Firm B: 9.99 times
• D) Firm A: 20 times; Firm B: 1.11 times

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Definitions:

Cortex

The outermost layer of the brain, involved in numerous high-level functions, including thought, memory, and sensory processing.

Two-Factor Theory

A psychological theory suggesting emotions are based on physiological arousal and cognitive labeling.

Cognitive Appraisal

The process of evaluating a situation in terms of its relevance to one's well-being and determining the appropriate reaction.

Physiological Arousal

Refers to the physical responses of the body, such as increased heart rate and sweating, that accompany emotions and cognitive states.