Lauterbach Corporation Uses No Debt, Its Beta Is 1

question 42

Multiple Choice

Lauterbach Corporation uses no debt, its beta is 1.10, and its tax rate is 40%. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 5.0% and the market risk premium is 6.0%, by how much would the capital structure shift change the firm's cost of equity?

• A) 1.53%
• B) 1.70%
• C) 1.87%
• D) 2.05%
• E) 2.26%

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Definitions:

Defect Rate

The frequency at which errors or imperfections occur in a product, process, or service, typically expressed as a proportion of the total output.

Feedback Source

The origin, either a person or system, from which feedback is received.

Counseling Objective

Refers to the goals set within a therapeutic context aiming to guide the client towards resolution or improvement of their issues.

Positive Work Outcomes

The beneficial results generated from professional activities, including increased productivity, higher employee satisfaction, and improved company culture.