A Firm Has a Market Value of Assets of $50,000

question 87

Multiple Choice

A firm has a market value of assets of $50,000. It borrows $10,000 at 3%. If the unlevered cost of equity is 15%, what is the firm's cost of equity capital?

• A) 18%
• B) 16%
• C) 19%
• D) 17%

---

Definitions:

Par Value

The face value of a bond or stock as stated by the issuing company, which may be different from its market value.

Bond

A fixed income investment in which an investor loans money to an entity (corporate or governmental) which borrows the funds for a defined period at a variable or fixed interest rate.

American Options

Financial derivatives that give the holder the right to buy or sell an asset at a set price at any time before the expiration date.

Expiration Date

The specific date after which a product is considered no longer usable or effective, often found on perishable goods and medications.