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Cartwright Communications Is Considering Making a Change to Its Capital

question 52

Multiple Choice

Cartwright Communications is considering making a change to its capital structure to reduce its cost of capital and increase firm value.Right now, Cartwright has a capital structure that consists of 20% debt and 80% equity, based on market values.(Its D/S ratio is 0.25.) The risk-free rate is 6% and the market risk premium, r_M − r_RF, is 5%.Currently the company's cost of equity, which is based on the CAPM, is 12% and its tax rate is 25%.What would be Cartwright's estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?

Recognize the legal distinctions between practices that restrain trade and those that promote competition under antitrust laws.

Identify and differentiate between lawful and unlawful agreements under the Sherman Act.

Analyze the implications of market power and monopolization on competition.

Understand the legal consequences of anticompetitive behaviors such as price-fixing, market division, and predatory pricing.

Definitions:

Income

Income earned from work or investments, typically received regularly.

Poverty Line

A calculated income level used to determine the minimum resources necessary for individuals to meet their basic needs.

Richest American

An individual in the United States with the highest net worth, often derived from entrepreneurial ventures, investments, or inheritance.

Economic Growth

An outward shift of the production possibilities frontier brought about by an increase in available resources and/or a technological improvement.