A Firm Has a Debt-To-Equity Ratio of 0

question 69

Multiple Choice

A firm has a debt-to-equity ratio of 0.5. Its cost of equity is 22%, and its cost of debt is
16%) If the corporate tax rate is .40, what would its cost of equity be if the debt-to-equity ratio were 0?

• A) 20.62%
• B) 16.00%
• C) 26.8%
• D) None of the above

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Definitions:

Production Function

A mathematical model that describes the relationship between inputs (like labor and capital) and the maximum output that can be produced.

Good y

Represents a specific product or service in economic models, often used to analyze consumer behavior or market dynamics.

Manicotti

A large pasta tube often stuffed with filling, such as ricotta cheese and spinach, and baked with a sauce.

Family Recipe

A recipe that is passed down from generation to generation within a family.