Firm L Has Debt with a Market Value of $200,000

question 20

Multiple Choice

Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is Firm L's cost of equity?

• A) 11.4%
• B) 12.0%
• C) 12.6%
• D) 13.3%
• E) 14.0%

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Definitions:

Gluteus Medius

A muscle located on the outer aspect of the hip, crucial for stabilizing the pelvis and enabling hip abduction.

Tensor Fasciae Latae

A muscle of the thigh that helps to stabilize and move the hip and knee, and is involved in the abduction and internal rotation of the hip.

Tibialis Posterior

A deep muscle of the lower leg that supports the arch of the foot and aids in plantar flexion and inversion of the foot.

Adductor Magnus

A large muscle in the thigh that helps in the movement of drawing the legs together (adduction).