Al's Pub Has Debt with Both a Book and a Market

question 179

Multiple Choice

Al's Pub has debt with both a book and a market value of $120,000. This debt has a coupon rate of 9% and pays interest annually. The expected earnings before interest and taxes are $42,600, the tax rate is 34%, and the unlevered cost of capital is 11%. What is the firm's cost of equity?

• A) 11.90%
• B) 12.07%
• C) 12.11%
• D) 12.15%
• E) 12.18%

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Definitions:

Stimulus

Any external or internal factor that influences an organism's behaviour or physiological reactions.

Determining Aspects

Essential features or elements that play a critical role in identifying or establishing the nature of something.

Gestalt Grouping

Principles in psychology that describe how humans naturally organize visual elements into groups or unified wholes.

Proximity

The physical or psychological closeness between people, objects, or ideas, often affecting perceptions and relations.