Learn and Earn Company Is Financed Entirely by Common Stock

question 52

Multiple Choice

Learn and Earn Company is financed entirely by Common stock that is priced to offer a
20% expected return. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding 8%, what is the expected return on the common stock after refinancing?

• A) 32%
• B) 28%
• C) 20%
• D) None of the above

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Definitions:

Perfected in One State

A legal status indicating that a security interest or lien is officially recorded or acknowledged in a particular state, safeguarding the rights of the lienholder.

Transfer to Another State

The process of moving a legal case or an individual, such as a parolee or prisoner, from one state's jurisdiction to another.

Four Months

A period of time equal to approximately 120 days, often used in the context of timelines for projects, payments, or legal matters.

After-Acquired Property

Property acquired by a debtor after a security agreement is signed, which may still be subject to a creditor's claim.