A Firm Has a Debt-To-Equity Ratio of 1

question 33

Multiple Choice

A firm has a debt-to-equity ratio of 1.Its levered cost of equity is 16%,and its cost of debt is 8%.If there were no taxes,what would be its cost of equity if the debt-to-equity ratio were zero?

• A)8%
• B)10%
• C)12%
• D)14%

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Definitions:

Elastic

A characteristic of goods or services with demand sensitive to changes in price, wherein a small change in price leads to a significant change in the quantity demanded or supplied.

Complementary Products

Goods or services that are used together, enhancing the value of each other when consumed or utilized in combination.

Price Inelastic

A situation in which the demand for a product does not change significantly in response to a change in its price.

Quantity Demanded

The total amount of a product that consumers are willing and able to purchase at a specific price in a given time period.