Firm L Has Debt with a Market Value of $200,000

question 20

Multiple Choice

Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is Firm L's cost of equity?

• A) 11.4%
• B) 12.0%
• C) 12.6%
• D) 13.3%
• E) 14.0%

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Definitions:

Resigned

The act of formally giving up a position or office, often in a professional context.

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Refers to officials or leaders who passed away while still holding their elected or appointed positions.

Office of Management

A governmental bureau or department responsible for overseeing the administration and budgeting processes within the public sector, ensuring efficient operation and resources allocation.

Annual Budget

A financial document that projects income and expenditures for a specific year.