The Kimberly Corporation Is a Zero Growth Firm with an Expected

question 6

Multiple Choice

The Kimberly Corporation is a zero growth firm with an expected EBIT of $100,000 and a corporate tax rate of 30%. Kimberly uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%.
-What is the firm's cost of equity?

• A) 21.0%
• B) 23.3%
• C) 25.9%
• D) 28.8%
• E) 32.0%

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Definitions:

Income Effects

Changes in consumers' purchasing power and consumption patterns resulting from changes in their income.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute more expensive items with cheaper alternatives.

Price Change

A modification in the cost of goods and services over time, reflecting economic factors such as inflation, supply, and demand.

Pepsi

A carbonated soft drink manufactured by PepsiCo, known for being one of the most popular cola beverages globally alongside Coca-Cola.